NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 ANNUAL REPORT
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
1 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Table of Contents
Page
COMPANY OVERVIEW
Features
2
Capital Structure
3
Business Model
4
2023 PERFORMANCE
REVIEW
Financial Highlights
8
Chairman’s Statement
10
Investment Manager’s Report
12
Portfolio Information
17
Ordinary Share Class
17
Extended Life Share Class
19
New Global Share Class
21
Strategic report
23
GOVERNANCE
Directors
29
Directors’ Report
30
Corporate Governance Report
35
Audit Committee Report
43
Management Engagement Committee Report
47
Inside Information Committee Report
49
Remuneration Committee Report
50
Directors’ Remuneration Report
51
Directors’ Responsibilities Statement
54
Independent Auditor’s Report
55
FINANCIAL STATEMENTS
Consolidated Statement of Assets and Liabilities
60
Consolidated Statement of Operations
61
Consolidated Statement of Changes in Net Assets
62
Consolidated Statement of Cash Flows
63
Consolidated Condensed Schedule of Investments
64
Notes to the Consolidated Financial Statements
72
ADDITIONAL INFORMATION
Contact Details
90
2 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
1
In addition the Company has two Class A Shares in issue. Further information
is provided in the Capital Structure section of this report on page 3
COMPANY OVERVIEW |
Features
NB Distressed Debt Investment Fund Limited (the
“Company”)
The Company is a closed-ended investment company
incorporated and registered in Guernsey on 20 April 2010
with registration number 51774. The Company is governed
under the provisions of the Companies (Guernsey) Law,
2008 (as amended) (the “Law”), and the Registered
Collective Investment Scheme Rules and Guidance 2021
issued by the Guernsey Financial Services Commission
(“GFSC”). It is a non-cellular company limited by shares
and has been declared by the GFSC to be a registered
closed-ended collective investment scheme. The Company
trades on the Specialist Fund Segment (“SFS”) of the
London Stock Exchange (“LSE”).
The Company is a member of the Association of
Investment Companies (the “AIC”) and is classified within
the Debt – Loans & Bonds Category.
Investment Objective
The Company’s primary objective is to provide investors
with attractive risk-adjusted returns through long-biased,
opportunistic exposure to stressed, distressed and special
situation credit-related investments while seeking to limit
downside risk by, amongst other things, focusing on senior
and senior secured debt with both collateral and structural
protection.
Alternative Investment Fund Manager (“AIFM”) and
Manager
Investment management services are provided to the
Company by Neuberger Berman Investment Advisers LLC
(the “AIFM”) and Neuberger Berman Europe Limited (the
“Manager”), collectively the “Investment Manager”. The
AIFM is responsible for risk management and discretionary
management of the Company’s Portfolio and the Manager
provides, amongst other things, certain administrative
services to the Company.
Share Capital
As at 31 December 2023 the Company’s share capital
comprised the following
1
:
Ordinary Share Class (“NBDD”)
15,382,770 Ordinary Shares, none of which were held in
treasury.
Extended Life Share Class (“NBDX”)
44,234,790 Extended Life Shares, none of which were
held in treasury.
New Global Share Class (“NBDG”)
27,821,698 New Global Shares, none of which were held
in treasury.
For the purposes of efficient portfolio management, the
Company has established a number of wholly-owned
subsidiaries domiciled in Luxembourg. All references to
the Company in this document refer to the Company
together with its wholly-owned subsidiaries.
Non-Mainstream Pooled Investments
The Company currently conducts its affairs so that the
shares issued by the Company can be recommended by
Independent Financial Advisers to ordinary retail investors
in accordance with the Financial Conduct Authority’s
(“FCA”) rules in relation to non-mainstream pooled
investment (“NMPI”) products and intends to continue to
do so for the foreseeable future.
The Company’s shares are excluded from the FCA’s
restrictions which apply to NMPI products.
Company Numbers
Ordinary Shares
LSE ISIN code: GG00BDFZ6F78
Bloomberg code: NBDD: LN
Extended Life Shares
LSE ISIN code: GG00BR88RQ95
Bloomberg code: NBDX:LN
New Global Shares
LSE ISIN code: GG00BNTXRB08
Bloomberg code: NBDG:LN
Legal Entity Identifier
YRFO7WKOU3V511VFX790
Website
www.nbddif.com
3 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Capital Structure
The Company’s share capital consists of three different share classes, all of which are in the harvest period: the Ordinary Share Class;
the Extended Life Share Class; and the New Global Share Class. These share classes each have different capital return profiles and, in
one instance a different geographical remit. In addition, the Company has two Class A Shares in issue. While the Company’s share
classes are all now in harvest, returning capital to shareholders, the Company’s corporate umbrella itself has an indefinite life to allow
for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a
move, although the Company has no current plans to create new share classes. Each share class is considered in turn below.
Ordinary Share Class
NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed debt market with a
focus on North America. The investment period of NBDD expired on 10 June 2013.
Voting rights: Yes
Denomination: US Dollars
Hedging: Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value: Nil
Extended Life Share Class
A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where the majority of shareholders voted in favour of a
proposed extension.
Following this meeting and with the NBDD shareholders’ approval of the extension, on 9 April 2013 a new Class, NBDX, was created
and the NBDX Shares were issued to 72% of initial NBDD investors who elected to convert their NBDD Shares to NBDX Shares. NBDX
had a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDX expired on 31
March 2015.
Voting rights: Yes
Denomination: US Dollars
Hedging: Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value: Nil
New Global Share Class
NBDG was created on 4 March 2014 and had a remit to invest in the global distressed market with a focus on Europe and North
America. The investment period of NBDG expired on 31 March 2017.
Voting rights: Yes
Denomination: Pound Sterling
Hedging: Unhedged portfolio
Authorised share capital: Unlimited
Par value: Nil
Class A Shares
The Class A Shares are held by a trustee pursuant to a purpose trust established under Guernsey law. Under the terms of the Trust
Deed the Trustee holds the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company
but the Trustee shall only have the right to attend and vote at general meetings of the Company when there are no other Shares of the
Company in issue.
Voting rights: No
Denomination: US Dollars
Authorised share capital: 10,000 Class A Shares
Par value: US Dollar $1
COMPANY OVERVIEW |
Capital Structure
4 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
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
1
Further information on the Company’s capital structure can be found on page 3.
2
Further information on the Company’s investment management arrangements can be found on page 28.
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.
COMPANY OVERVIEW |
Business Model
Company
(Guernsey domiciled Alternative
Investment Fund)
TRUSTEE
1
Class A
Shares
1
NBDG SHAREHOLDERS
1
NBDX SHAREHOLDERS
1
NBDD SHAREHOLDERS
1
ALTERNATIVE INVESTMENT FUND
MANAGER
2
(Neuberger Berman Investment
Advisers LLC)
MANAGER
2
(Neuberger Berman Europe
Limited)
Company Portfolio
attributable to Ordinary
Shares
Company Portfolio attributable
to Extended Life Shares
Company Portfolio
attributable to New Global
Shares
5 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
COMPANY OVERVIEW | Business Model
Business Model (continued)
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.
6 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
COMPANY OVERVIEW | Business Model
Business Model (continued)
Typical Life Cycle of a Distressed Debt Investment
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).
IDENTIFY DISTRESSED OPPORTUNITY AND INITIATE INVESTMENT
Identify Senior Secured debt secured by hard assets which maintain value during restructuring process
Understand creditor group makeup and motivations of different constituencies
RESTRUCTURE COMPANY
Enter negotiations with various creditor classes
Assess value allocation to various creditor classes
Consider pre-packaged bankruptcies versus “Chapter 11” court-based formal bankruptcy process
1
COMPANY EMERGES FROM BANKRUPTCY
Fund capital expenditures necessary for future profitability
Optimise capital structure for return to profitability
Implement business model for return to profitability
EXIT INVESTMENTS
Company returns to profitability and creates value for equity
Sale of the company to a strategic buyer
Effect a dividend recapitalisation
Liquidate the company to recover the original investment
7 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
COMPANY OVERVIEW | Business Model
Business Model (continued)
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.
8 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Financial Highlights
Key Figures
AS AT 31 DECEMBER 2023
ORDINARY
SHARE CLASS
EXTENDED LIFE
SHARE CLASS
NEW GLOBAL
SHARE CLASS
1
AGGREGATED
Net Asset Value (“NAV”) ($ millions) 12.4 45.6 22.1 80.1
NAV per Share ($) 0.8071 1.0312 0.7954 -
Share Price ($) 0.6900 0.5300 0.3952 -
NAV per Share (£) - - 0.6239 -
Share Price (£) - - 0.31 -
Premium /(Discount) to NAV per Share (14.51%) (48.60%) (50.32%) -
Portfolio of Distressed Investments ($ millions) 7.4 32.0 21.5 60.9
Cash and Cash Equivalents ($ millions) 4.3 11.9 0.3 16.5
Total Expense Ratio (“TER”)
2
1.28% 1.38% 2.21% -
Ongoing Charges
3
1.22% 1.31% 2.17% -
AS AT 31 DECEMBER 2022
ORDINARY
SHARE CLASS
EXTENDED LIFE
SHARE CLASS
NEW GLOBAL
SHARE CLASS
1
AGGREGATED
Net Asset Value (“NAV”) ($ millions) 11.9 58.5 24.8 95.2
NAV per Share ($) 0.7730 0.9728 0.7987 -
Share Price ($) 0.740 0.4800 0.4691 -
NAV per Share (£) - - 0.6640 -
Share Price (£) - - 0.39 -
Premium /(Discount) to NAV per Share (4.27%) (50.66%) (41.26%) -
Portfolio of Distressed Investments ($ millions) 7.3 42.5 24.0 73.8
Cash and Cash Equivalents ($ millions) 4.4 15.2 0.2 19.8
Total Expense Ratio (“TER”)
2
0.97% 0.99% 1.33% -
Ongoing Charges
3
0.95% 0.96% 1.29% -
1
Stated in US Dollars, the £ price as at 31 December 2023 and 31 December 2022 converted to US Dollars using respective year end exchange rates.
2
The TERs represent the operating expenses, as required by US Generally Accepted Accounting Principles (“US GAAP”), expressed as a percentage of average net assets.
3
In the year to 31 December 2023, the Company’s Ongoing Charges were 1.53%. This figure is based on an expense figure for the year to 31 December 2023 of
$1,324,249. This figure, which has been prepared in accordance with AIC guidance represents the Company’s operating expenses, excluding finance costs payable,
expressed as a percentage of average net assets. Effective 18 March 2021, the Investment Manager had waived its entitlement to all fees from the Company. The
Ongoing Charges by share class are disclosed above.
202
3
PERFORMANCE REVIEW |
Financial Highlights
9 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Financial Highlights
Financial Highlights (continued)
Summary of Value in Excess of Original Capital Invested
AS AT 31 DECEMBER 2023
ORDINARY
SHARE CLASS ($)
EXTENDED LIFE
SHARE CLASS ($)
NEW GLOBAL
SHARE CLASS (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 294,070,076 51,444,766
Total Income Distributions
1
3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 88% 51%
Total Buybacks
-
12,112,379 10,924,963
NAV 12,415,231 45,614,485 17,358,035
Total of NAV Plus Capital and Income Returned (“Value”) 145,209,460 372,492,195 84,798,049
Value in Excess of Original Capital Invested 20,709,258 13,132,401 (25,987,736)
Value as % of Original Capital Invested 117% 104% 77%
AS AT 31 DECEMBER 2022
ORDINARY
SHARE CLASS ($)
EXTENDED LIFE
SHARE CLASS ($)
NEW GLOBAL
SHARE CLASS (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 278,812,413 49,279,634
Total Income Distributions
1
3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 83% 49%
Total Buybacks
-
12,112,379 10,924,963
NAV 11,890,321 58,477,990 20,598,909
Total of NAV Plus Capital and Income Returned (“Value”) 144,684,550 370,098,037 85,873,792
Value in Excess of Original Capital Invested 20,184,348 10,738,243 (24,911,993)
Value as % of Original Capital Invested 116% 103% 78%
1
By way of dividend
10 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Chairman’s Statement
Chairman’s Statement
The year ended 31 December 2023 continued to see interest rate and inflation uncertainty, the wars in
Ukraine and the Middle East, rising recession risk and volatile energy prices. As has been noted before,
with each share class in its harvest period, we continue to seek to balance the pace of exits and the value
achieved for shareholders as we return capital to our investors. As a reminder, the Ordinary class
shareholders will no longer receive capital distributions until such time as all final assets attributable to them
have been realised to ensure compliance with UK regulations.
Company Performance
As at 31 December 2023, the Company had returned a total of $132.8m or 107% of NBDD investors’
original capital of $124.5m, $326.9m or 91% of NBDX investors’ original capital of $359.4m and £67.4m or 61% of NBDG investors’
original capital of £110.8m. We remain in what we hope to be the final stages of harvesting a number of investments and we will keep
investors informed as they occur. It is our intention to fully harvest NBDD during the coming year, subject to market conditions, and with
this in mind the Investment Manager continues to evaluate all options. The Board continues to monitor all costs to ensure that they are
appropriate as we are conscious that shareholders may be concerned about the impact of costs on a reducing portfolio during the
harvest period. We would therefore remind shareholders that our investment manager no longer charges any fees.
Annual General Meeting (“AGM”) Results
We were pleased to see that shareholders voted overwhelmingly in favour of all resolutions proposed at our AGM held on 28 June
2023. We appreciate that circumstances have adversely impacted the results the company has achieved and would like to take the
opportunity to thank you all for your votes and continued support. We would continue to highlight the importance of voting in the AGM
and are always happy to receive any questions or concerns from shareholders ahead of the AGM so they can be addressed
beforehand.
Board Composition, Independence and Diversity
Due to the expected wind up of the fund it is not considered appropriate or practical to refresh the board at present and we believe the
results of the relevant AGM resolutions endorse this approach.
Distributions
During 2023, we made further progress on the realisation of assets. Following the receipt of proceeds from the realisation of a lodging &
casinos investment the Board resolved on 17 April 2023 to make capital distributions of $0.1356 and £0.0698 per share in respect of
the NBDX and NBDG classes respectively. These distributions were made by a compulsory pro rata redemption of shares held as at
May 2, 2023 with payment being made on 17 May 2023.
On 16 June 2023, the Board announced a further capital distribution of $0.0651 per Extended Life Share, again from the realisation of a
lodging & casinos investment, which was paid on 13 July 2023.
On 21 August 2023, the Board announced a further capital distribution of $0.0786 per Extended Life Share, from a Return of Capital
Distribution of a Financial Intermediaries investment, which was paid on 25 September 2023.
We will continue to put our income distribution policy to a shareholder vote at each annual general meeting. I would like to remind
shareholders that such distributions occur on an ad-hoc basis and are not expected to be either material or equal for each share class.
11 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Chairman’s Statement
Chairman’s Statement (continued)
Outlook
As I said in previous reports, the final distributions from each share class have been delayed. The Ordinary class of shares is expected
to be the first to commence the final wind-up process in the coming year, followed by the Extended share class and then the New
Global share class. As is normally the case with investment companies, as opposed to those with commercial undertakings, this does
not currently have any material impact on the Company’s ability to continue as a going concern or to remain viable. However, the whole
process must be managed in a way that ensures compliance with UK regulations. The Extended and Global classes will continue to
distribute until their net assets are reduced to approximately $37.3m and £8.4m respectively. In certain cases, the cash associated with
these share classes will need to remain in underlying corporate vehicles while tax and other matters relating to those vehicles are
concluded. We will keep investors appraised of developments in respect of the remaining assets.
For regulatory reasons, the final 10% of the total return (NAV plus cumulative distributions) in respect of any class of participating
shares in the Company will be returned to shareholders with a final compulsory redemption of all of the outstanding shares of that class.
On behalf of the Board, I would like to thank our longstanding shareholders for your support of our Company. We look forward to
updating you further on investment realisations throughout this year.
John Hallam
Chairman
25 April 2024
12 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Investment Manager’s Report
Investment Manager’s Report
Ordinary Share Class
Summary
The NAV per share increased by 3.64 % for the year ended 31 December, 2023. Financial markets focussed on stubborn inflation
trends combined with a gradual deterioration in the cyclical economy for much of 2023. However, as fears of sticky inflation faded,
expectations of rate cuts have soothed hard-landing concerns. Looking ahead, investors will continue to monitor multiple trends
including economic growth dynamics, the ultimate destination of rates, and geopolitical events. All could lead to elevated volatility over
the next 12 months and beyond. Given these circumstances, the timing and quantum of any financial impact on the portfolio remains
very difficult to predict. Despite the uncertainty, the Investment Manager is committed to realising the investments in a timely manner
and winding down the share class as soon as practicable, but there is one asset we are working through which will determine the final
distribution date. Currently we are in what we hope to be the final stages of harvesting a number of investments and we will keep
investors informed as they occur. It is our intention to fully harvest NBDD during the coming year.
Portfolio Update
NBDD ended the year with a NAV per share of $0.8071 compared to $0.7730 at end of 2022. The NAV increase was principally driven
by an increase in value of a packaging company investment and a surface transport investment. At 31 December 2023, 58% of NBDD’s
NAV was invested in distressed assets, and $4m in US Government securities which represented a further 42% of NAV, with a minimal
amount cash net of payables (see table below). Cash balances will continue to increase as assets are realised, subject to variations in
collateral cash, but as noted previously cannot be distributed until the final liquidation of the share class. The portfolio consisted of 5
issuers across four sectors. The largest sector concentrations were in surface transportation, containers & packaging and financial
intermediaries.
CASH ANALYSIS
Balance Sheet – Cash $4.3m
Collateral cash ($3.1m)
Other payables ($0.0m)
Total available cash $1.2m
Significant Price Movement during 2023 (more than 1% of NBDD NAV or approximately $120,000)
INDUSTRY INSTRUMENT
TOTAL RETURN
(US DOLLARS MILLIONS)
COMMENT
Containers & packaging
Private Equity
0.4
Sponsor Equity Injection
Surface Transport
Total Return Swap
0.
6
Interest accruals
Temporary Investments
US Treasury Bills
0.2
Price rise and Interest accruals
Exits
During the year, we had no exits. The total number of exits since inception in NBDD is 51, with a total return of $35.4m.
13 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Investment Manager’s Report
Investment Manager’s Report (continued)
Ordinary Share Class (continued)
Distributions
To date, $132.8m or 107% of original capital has been distributed to investors in the form of capital distributions via redemptions and
income dividends. Total value to investors including NAV and all distributions paid is $145.2m (117% of original capital). For regulatory
reasons, the final 10% of the total return (NAV plus cumulative distributions) in respect of any class of participating shares in NBDDIF
will be returned to shareholders with a final compulsory redemption of all of the outstanding shares of that class. The next distribution
for NBDD will be the final distribution to shareholders and will wind down the share class. Our current expectation is to wind down the
share class during the coming year, assuming supportive market conditions. We will continue to update investors as we gain clarity on
the realisations.
Extended Life Share Class
Summary
The NAV per share increased by 5.5 % for the year ended 31 December, 2023. Financial markets focussed on stubborn inflation trends
combined with a gradual deterioration in the cyclical economy for much of 2023. However, as fears of sticky inflation faded,
expectations of rate cuts have soothed hard-landing concerns. Looking ahead, investors will continue to monitor multiple trends
including economic growth dynamics, the ultimate destination of rates, and geopolitical events. All could lead to elevated volatility over
the next 12 months and beyond. Given these circumstances, the timing and quantum of any financial impact on the portfolio remains
very difficult to predict. Despite the uncertainty, the Investment Manager is committed to realising the investments in a timely manner
and winding down the share class as soon as practicable. Currently we are in what we hope to be the final stages of harvesting a
number of investments and we will keep investors informed as they occur. It is our intention to fully harvest NBDX during the next 18
months or so.
Portfolio Update
NBDX ended the year with a NAV per share of $1.0312 compared to $0.9728 at end of 2022. At 31 December 2023, 89% of NBDX’s
NAV was invested in distressed assets, and $1.9m in US Government securities which represented a further 11% of NAV with a
minimal amount of cash net of payables (see table below). Cash balances will continue to increase as assets are realised, subject to
variations in collateral cash, but as noted previously not all cash can be distributed until the final liquidation of the share class. The NAV
per share increase during the year was principally driven by an increase in value of a packaging investment and two surface transport
investments, offset by a decrease in value of an automobile components investment The NBDX portfolio consists of 8 issuers across 6
sectors. The largest sector concentrations were in surface transportation, financial intermediaries, oil & gas, containers & packaging.
CASH ANALYSIS
Balance Sheet – Cash $11.9m
Collateral cash ($8.7m)
Other payables ($0.1m)
Total available cash $3.1m
14 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Investment Manager’s Report
Investment Manager’s Report (continued)
Extended Share Class (continued)
Notable events below describe activity in the investments during 2023:
In March 2023, a restructuring agreement for a gaming & lodging investment was executed which resulted in a paydown of the Secured
Notes. Proceeds of approximately $6.4m were received in April 2023.
In May 2023, we exited another gaming & lodging investment in the secondary market. NBDX received approximately $2.0m.
In June 2023, a financial intermediary investment made a distribution to its surplus note holders of approximately $33.4m, of which
NBDX received $4.3m.
Significant Price Movements during 2023 (more than 1% of NBDX NAV or $460,000)
INDUSTRY INSTRUMENT
TOTAL RETURN
(USD MILLIONS)
COMMENT
Automobile Components Private Equity
(0.7)
Containers &
Packaging
Private Equity
1.0
Sponsor Equity Injection
Surface Transport
Total Return
S
wap
1.
5
Interest Accrual
Surface Transport
Bank Debt Investments
0.6
Interest Accrual
Exits
In 2023 we had two exits. This brought the total number of exits since inception in NBDX to 71 with total return of $70.9m.
Distributions
During 2023 NBDX made $15.3m distributions. The total distributions to date (dividends, redemptions and buy-backs) amount to
$326.9m or 91% of original capital. Total value to investors including NAV and all distributions paid is $372.5m or 104% of original
capital. For regulatory reasons, the final 10% of total return in respect of any class of participating shares in NBDDIF will be returned to
shareholders with the final compulsory redemption of all of the outstanding shares of that class. The investment manager has
undertaken a review of all the investments in the light of a changed market and we have updated the distribution schedule for the
investments based on current expectations. During the next 18 months or so assuming supportive market conditions, our current
expectation is to wind down the share class. We will continue to update investors as we gain clarity on the realisations.
New Global Share Class
Summary
The NAV per share decreased by 6.04% for the year ended 31 December 2023 primarily due to currency fluctuation. Financial markets
focussed on stubborn inflation trends combined with a gradual deterioration in the cyclical economy for much of 2023. However, as
fears of sticky inflation faded, expectations of rate cuts have soothed hard-landing concerns. Looking ahead, investors will continue to
monitor multiple trends including economic growth dynamics, the ultimate destination of rates, and geopolitical events. All could lead to
elevated volatility over the next 12 months and beyond. Given these circumstances, the timing and quantum of any financial impact on
the portfolio remains very difficult to predict. Despite the uncertainty, the Investment Manager is committed to realising the investments
in a timely manner and to winding down the share class as soon as practicable. Currently we are in what we hope to be the final stages
of harvesting a number of investments and we will keep investors informed as they occur. It is our intention to fully harvest NBDG
during the next 12 months.
15 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Investment Manager’s Report
Investment Manager’s Report (continued)
New Global Share Class (continued)
Portfolio Update
NBDG ended the year with a NAV per share of £0.6239 compared to £0.6640 at the end of 2022. At 31 December 2023, 100% of
NBDG’s NAV was invested in distressed assets with a minimal amount of cash net of payables (see table below). NAV per share
decreased during the year primarily due to currency fluctuation and to a reduction in value of a lodging & casino investment and an
automobile components investment, offset by an increase in value of a surface transport investment. The portfolio consisted of 5
issuers across 5 sectors. The largest sector concentrations were in lodging & casinos, commercial mortgage, surface transportation and
oil & gas.
CASH ANALYSIS
Balance Sheet – Cash $0.3m
Other payables ($0.2m)
Total available cash $0.1m
Notable events involving NBDG’s investments during 2023 are below:
In March 2023, a restructuring agreement for a gaming & lodging investment was executed which resulted in a paydown of the Secured
Notes. Proceeds of approximately £2.6m were received in April.
Significant Price Movements during 2023 (more than 1% of NBDG NAV or £170,000)
INDUSTRY INSTRUMENT
TOTAL RETURN
(US
D
MILLIONS)
COMMENT
Surface Transport
Bank Debt Investments
0.
6
Interest Accrual
Lodging & Casinos
Bank Debt Investments
(0.
6
)
Lower Expected Value
Automobile Components
Private Equity
(0.
3
)
Exits
During 2023 there was one exit. The total number of exits since inception is 32 with a total return of £ 2.7m. Detailed descriptions of the
exits are at the end of this report.
Distributions
During 2023, there were distributions of £2.2m. The total distributions to date (dividends, redemptions, and buy-backs) have been
£67.4m or 61% of original capital. Total value to investors including NAV and all distributions paid is £84.8m or 77% of original capital.
For regulatory reasons, the final 10% of total return in respect of any class of participating shares in NBDDIF will be returned to
shareholders with the final compulsory redemption of all the outstanding shares of that class. The investment manager has undertaken
a review of all the investments in the light of a changed market and we have updated the distribution schedule for the investments
based on current expectations. During the next 18 months or so assuming supportive market conditions, our current expectation is to
wind down the share class. We will continue to update investors as we gain clarity on the realisations.
16 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Investment Manager’s Report
Investment Manager’s Report (continued)
Summary of Exits across all Share Classes
Exits experienced from inception to date were as follows:
NBDD 51 exits with a total return of $35.4m, IRR
1
of 10% and ROR of 19%
NBDX 71 exits with a total return of $77.0m, IRR
1
of 5% and ROR of 12%
NBDG 32 exits with a total return of £ (2.2) m, IRR
1
of (4)% and ROR of (2)%
The annualised internal rate of return (“IRR”) is computed based on the actual dates of the cash flows of the security (purchases, sales,
interest and principal pay downs), calculated in the base currency of each portfolio. The Rate of Return (“ROR”) represents the change
in value of the security (capital appreciation, depreciation, and income) as a percentage of the purchase amount. The purchase amount
can include multiple purchases. Total Return represents the inception to date gain/loss on an investment.
Exit A1 (Exit 32 for NBDG and Exit 70 for NBDX)
EXIT A1 EXIT
CASH INVESTED
(MILLIONS)
CASH RECEIVED
(MILLIONS)
TOTAL RETURN
(MILLIONS)
IRR
ROR
MONTHS
HELD
NBDX
70
$
7.8
$
13.0
$
5.3
8.9
%
67.8
%
101
NBDG
32
£
2.5
£
5.2
£
2.7
12.9
%
109.9
%
101
Exit A2 (Exit 71 for NBDX)
EXIT A2 EXIT
CASH INVESTED
(MILLIONS)
CASH RECEIVED
(MILLIONS)
TOTAL RETURN
(MILLIONS)
IRR
ROR
MONTHS
HELD
NBDX
71
$
14.0
$
20.2
$6.1
8.0
%
43.7
%
116
Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited
25 April 2024 25 April 2024
17 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information
Ordinary Share Class
Top 4
1
Holdings as at 31 December 2023
HOLDING
SECTOR
PURCHASED
INSTRUMENT
STATUS
COUNTRY % OF NAV
PRIMARY ASSET
1 Surface Transport
2
Trade Claim Defaulted Brazil 33% Municipal Claim
2 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 21% Manufacturing Plant and Equipment
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 3% Manufacturing Plant and Equipment
4 Financial Intermediaries Secured Notes Post-Reorg US 2% Cash & Securities
Total 59%
Sector Breakdown
3
1
Ordinary Share Class holds four investments by issuer.
2
As at 31 December 2023 collateral pledged is included in the Surface Transport Market Value.
3
Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global
Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company. Surface Transport – Trade Claims have not been included in the Sector breakdown chart.
18 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information (continued)
Ordinary Share Class (continued)
Country Breakdown
4,5
31 December 2023 31 December 2022
4
Categorisations determined by Neuberger Berman and percentages determined by the Administrator, as a percentage of the net asset values as at 31 December 2023 and 31
December 2022.
5
As at 31 December 2023 collateral pledged is included in the Brazil Market Value.
19 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information (continued)
Extended Life Share Class
Top 8
1
Holdings as at 31 December 2023
HOLDING
SECTOR
PURCHASED
INSTRUMENT
STATUS
COUNTRY
% OF
NAV
PRIMARY ASSET
1 Surface Transport
2
Trade Claim Defaulted Brazil 23% Municipal Claim
2 Oil & Gas Post-Reorg Equity Post-Reorg US 17% Ethanol Plant
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 15% Manufacturing Plant and Equipment
4 Commercial Mortgage Secured Loan Defaulted Netherlands 11% Commercial Real Estate
5 Surface Transport Secured Loan Defaulted Spain 10% Concession
6 Financial Intermediaries Secured Notes Defaulted US 8% Cash and Securities
7 Auto Components Secured Loan Post-Reorg US 3% Manufacturing Plant and Equipment
8 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 2% Manufacturing Plant and Equipment
Total
89%
Sector Breakdown
3
1
Extended Share Class holds seven investments by issuer.
2
As at 31 December 2023 collateral pledged is included in the Surface Transport Market Value.
3
Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank
Global Fund Services (Ireland) as Administrator / Sub-Administrator to the Company. Surface Transport – Trade Claims have not been included in the Sector breakdown
chart.
20 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information (continued)
Extended Life Share Class (continued)
Country Breakdown
4, 5
31 December 2023 31 December 2022
4
Categorisations determined by Neuberger Berman and percentages determined by the Administrator, as a percentage of the net asset values as at 31 December 2023 and 31
December 2022.
5
As at 31 December 2023 collateral pledged is included in the Brazil Market Value.
21 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information (continued)
New Global Share Class
Top 5
1
Holdings as at 31 December 2023
HOLDING
SECTOR
PURCHASED
INSTRUMENT
STATUS
COUNTRY % OF NAV
PRIMARY ASSET
1
Lodging & Casino
Secured Loan / Private
Equity
Current Spain 32% Hotel/Casino
2
Commercial Mortgage Secured Loan Defaulted Netherlands 27% Commercial Real Estate
3
Surface
Transportation
Secured Loan Defaulted Spain 21% Legal Claim
4
Oil & Gas Private Equity Post-Reorg US 14% Ethanol Plant
5
Auto Components Secured Loan Post-Reorg US 3% Manufacturing Plant
Total
97%
Sector Breakdown
2
1
Global Share Class holds four investments by issuer
2
Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank
Global Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company.
22 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information (continued)
New Global Share Class (continued)
Country Breakdown
3
31 December 2023 31 December 2022
3
Categorisations determined by Neuberger Berman and percentages determined by the Administrator, as a percentage of the net asset values as at 31 December 2023 and 31
December 2022.
23 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
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, the management fee,
was waived with effect from 18 March 2021.
The Company retains the services of its broker, Jefferies
International Limited to, amongst other things, enhance liquidity in
the underlying shares.
202
3
PERFORMANCE REVIEW |
Strategic Report
24 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Strategic Report (continued)
Principal and Emerging Risks and Risk Management (continued)
RISK
MITIGATION
Level of Premium or Discount
A discount or premium to NAV can occur for a variety of
reasons, including market conditions and the extent to which
investors undervalue the management activities of the
Investment Manager or discount its valuation methodology and
judgement.
While the Directors may seek to mitigate any discount or premium
to NAV per share through discount management mechanisms,
such as buybacks or share issuance, there can be no guarantee
that they will do so or that such mechanisms will be successful
and the Directors accept no responsibility for any failure of any
such strategy to effect a reduction in any discount or premium.
Buy backs have been ceased with the focus moving to returning
capital to shareholders via compulsory redemptions
.
Market Price Risk
Market price risk is the potential for changes in the value of an
investment or Portfolio. The market value of investments may
vary because of a number of factors including, but not limited
to, the financial condition of the underlying borrowers, the
industry in which a borrower operates, general economic or
political conditions, interest rates, the condition of the debt
trading markets and certain other financial markets,
developments or trends in any particular industry and changes
in prevailing interest rates.
Further details on market price risk are provided in Note 4 on
page
8
3
.
The Board has, over the Investment Periods of the various share
classes, ensured that the Investment Manager has operated in
accordance with the Company’s investment guidelines. The
Directors monitor the status of the Portfolio investments with the
Investment Manager at each quarterly Board meeting and monitor
risk factors in respect of the Portfolios.
Fair Valuation of Illiquid Assets
With respect to investments that do not have a readily
ascertainable market quotation in an active market, the
Investment Manager will value such investments at fair value
and such valuations will be inherently uncertain. Because of
the inherent uncertainty and subjectivity in determining the fair
value of investments that do not have a readily ascertainable
market quotation in an active market, the fair value of the
Company’s investments as determined in good faith by the
Investment Manager may differ significantly from the values
that would have been used had a ready market existed for
such investments. The reliability of the NAV calculations
published by the Company will be impacted accordingly.
With respect to investments
held
in the Company’s Portfolios that
do not have a readily available market quotation, such as
unquoted investments or investments which are listed but
deemed to be illiquid, the Investment Manager values such
investments at fair value on each NAV calculation date in
accordance with its customary valuation methods, policies and
procedures. Further information on the Company’s valuation
process can be found in Note 2(g) under “Investment
transactions, investment income/expenses and valuation”, and
Note 2(f), “Fair Value of Financial Instruments”, of the Audited
Consolidated Financial Statements (the “Financial Statements”).
The Board monitors, reviews and challenges the Company’s fair
valued assets on a regular basis to ensure compliance with the
agreed methodology. The Board reviews the Investment
Manager’s internal review process.
Accounting, Legal and Regulatory
The Company must comply with the provisions of the Law, and
since its shares trade on the SFS, the Company is required to
comply with the FCA’s Disclosure Guidance and Transparency
Rules (“DTRs”). A breach of the legislation could result in the
Company and/or the Directors being fined or subject to
criminal proceedings and the suspension of the Company’s
shares to trading on the SFS.
The Board relies on the Company Secretary and the Company’s
advisers to ensure adherence to the Guernsey legislation and the
DTRs. The Investment Manager, Company Secretary and the
Administrator, are contracted to provide investment, company
secretarial, administration and accounting services through
qualified professionals.
Operational
Disruption to, or the failure of, either the Investment Manager’s
or the Administrator’s accounting, dealings or payment
systems, or the records of the custodian could lead to a loss of
assets and prevent the accurate reporting or monitoring of the
Company’s financial position.
Details of how the Board monitors the services provided by the
Investment Manager and the Administrator, and the key elements
designed to provide effective internal controls are explained
further in the internal controls section of the Corporate
Governance Report which is set out on pages
35
to
42
.
2023
PERFORMANCE REVIEW |
Strategic Report
25 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Strategic Report (continued)
Emerging Risks
The Board undertakes a quarterly assessment of all risks on a forward-looking basis, and in discussion with the Investment Manager identifies
emerging risks in addition to assessing expected changes to existing risks as discussed above. The Board assesses the likelihood and impact
of emerging risks. The Board will discuss and agree appropriate mitigation or management of emerging risks as relevant to those emerging
risks. Examples of emerging risks that have been identified over the course of the past three years included the continuing effects of COVID-
19, climate related risks and the issuance of new regulations, new risks associated with the Brexit trade deal. Emerging risks are managed
through discussion of the likelihood and impact at each quarterly Board meeting. Should an emerging risk be determined to have any potential
impact on the Company, appropriate mitigating measures and controls are agreed. Whilst COVID-19 was identified as an emerging risk in
2020, it has been discussed on a quarterly basis as a continued risk but it is no longer considered one by the board.
In 2019, the Board identified activism relating to climate change as an emerging risk and since then has closely monitored regulatory and other
developments in this area. The UN’s latest Intergovernmental Panel on Climate Change (IPCC) report will be considered by the Board when
undertaking Company related business.
Going Concern
The Company’s principal activities are set out on page 4. The financial position of the Company is set out on page 60. In addition, note 4 to the
Financial Statements includes the Company’s objectives, policies and processes for managing its capital, its financial risk management and its
exposures to credit risk and liquidity risk.
The Directors have undertaken a rigorous review of the Company’s ability to continue as a going concern including reviewing the on-going
cash flows and the level of cash balances, the likely liquidity of investments and any income deriving from those investments as of the
reporting date as well as taking into consideration the impact of emerging risks and have determined that the Company has adequate financial
resources to meet its liabilities as they fall due. The Directors therefore have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the twelve months from the date these accounts are signed and the foreseeable future.
Thus, they continue to adopt the going concern basis of accounting in preparing the Financial Statements and confirm that they have been
prepared in accordance with Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks, published
by the FRC.
The going concern statement required by the 2019 AIC Code of Corporate Governance (the “AIC Code”) is set out in the “Directors’
Responsibilities Statement” on page 54.
Viability Statement
In accordance with provision 8.2 paragraph 36 of the AIC Code of Corporate Governance, published in February 2019 (the “AIC Code”), the
Directors have assessed the future prospects of the Company. In making their assessment the Directors have considered the Company’s
status as an investment entity, its investment objectives, the principal and emerging risks it faces, its current position and the time period over
which its assets are likely to be realised.
In their assessment of the viability of the Company over the forthcoming twelve months, being the expected time to realisation of the final
assets of the share classes of the Company, the Directors have carried out a robust assessment of the emerging risks, principal risks and
uncertainties the Company faces, as detailed on pages 83 and 84. These risks include the timing of asset realisations during the Portfolios’
harvest periods, the Company’s income and expenditure projections, and the expected cash flows arising in particular from capital distributions
to shareholders. The Directors noted that such distributions may be restricted if the interest and dividend income generated in the Portfolios is
not sufficient to meet operational expenses.
As part of their review, the Directors carried out a series of stress tests under different scenarios which assumed a significant fall in income
and asset levels and a corresponding increase in expenses and were satisfied with the results of this analysis. The Directors have performed a
quantitative and qualitative analysis that included the Company’s income and expenditure projections and the fact that the Company’s
investments can be expected to be sold, within a reasonable timeframe, to meet future funding requirements if necessary. As part of this
assessment, the Directors reviewed a series of stress test scenarios carried out by the Investment Manager, which included an assumption of
a significant 70% fall in income and no reduction in expenses, and were satisfied that the Company would continue to be viable financially.
2023
PERFORMANCE REVIEW |
Strategic Report
26 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Strategic Report (continued)
Viability Statement (continued)
The Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the remaining life of each of its three share classes, which the Directors consider to be the twelve month period
from the signing date of these financial statements. However, the Directors noted that the prospects for the Company, which has an indefinite
life, are subject to change should the Company add new share classes to its structure before the existing Portfolios’ assets are fully realised.
Key Performance Indicators
In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the
Directors take into account the following performance indicators:
Returns and NAV – At each meeting the Board reviews the NAV, income and share price of each share class. To assist in this review the
Board considers formal reports from both the Investment Manager and brokers which assess the performance of the asset class and look
at trading activity. The Investment Manager also provides an in-depth analysis of the holdings within the Portfolios;
Discount/premium to NAV - At each Board meeting, the Board monitors the level of the Company’s discount or premium to NAV per share
class and reviews the average discount/premium for other debt-orientated investment companies. The Company publishes a NAV per
share on a daily basis through the official newswire of the London Stock Exchange.
Ongoing Charges - In the year to 31 December 2023, the Company’s Ongoing Charges were 1.53%. This figure is based on an annual
expense figure for the year of $1,324,249. This figure, which has been prepared in accordance with AIC guidance represents the
Company’s operating expenses, excluding finance costs payable, expressed as a percentage of average net assets. No performance fees
were payable as at 31 December 2023. The Ongoing Charges by share class are disclosed on page 8.
• Total Expense Ratio (“TER”) - In the year to 31 December 2023, the Company’s TER was 1.60%. This figure is based on an annual
expense figure for the year of $1,382,337. This figure which has been prepared in accordance with the U.S. Generally Accepted
Accounting Principles (“US GAAP”) methodology, represents the annual percentage reduction in shareholder returns as a result of
recurring operational expenses including any performance fee. No performance fees were payable as at 31 December 2023. The TERs by
share class are disclosed on page 8.
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
2023
PERFORMANCE REVIEW |
Strategic Report
27 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Strategic Report (continued)
Alternative Performance Measures (“APMs”) (continued)
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
s
hare 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
2023
PERFORMANCE REVIEW |
Strategic Report
28 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Strategic Report (continued)
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 on
page 86 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 on page 86 and 87 for details of fee entitlement.
On 1 June 2018 the Company entered into an Amendment to the Administration and Sub-Administration agreement to reflect the requirements
of the General Data Protection Regulation (EU) 2016/679 ("GDPR") and the Data Protection (Bailiwick of Guernsey) Law, 2017, as amended
from time to time.
Company Secretarial and Registrar Arrangements
Effective 20 June 2017, company secretarial services are provided by Suntera (Guernsey) Limited (formerly named Carey Commercial
Limited). Registrar services are provided by Link Market Services (Guernsey) Limited.
See Note 6 on page 86 and 87 for details of fee entitlement.
Related Party Transactions
The relationships with the Investment Manager and Directors are the only related party transactions currently in place. Other than fees payable
in the ordinary course of business there have been no material transactions with these related parties which have affected the financial
position or performance of the Company in the financial year.
For information on performance fees and Directors’ fees please refer to Note 6 on page 87.
For and on behalf of the Board,
John Hallam Christopher Legge
Chairman Director
25 April 2024 25 April 2024
2023
PERFORMANCE REVIEW |
Strategic Report
29 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors
John Hallam (Chairman)
John Hallam is a fellow of the Institute of Chartered Accountants in England and Wales and qualified as an
accountant in 1971. Previously, Mr Hallam was a partner at PricewaterhouseCoopers and retired in 1999 after 27
years with the firm in Guernsey and in other countries. He is a director of Real Estate Credit Investment Limited and a
number of other financial services companies, some of which are listed on recognised exchanges. Mr Hallam served
for many years as a member and latterly chairman of the GFSC, from which he retired in 2006.
Michael J. Holmberg
Michael J. Holmberg, Managing Director of Neuberger Berman, joined the NB Group in 2009. Mr Holmberg is the
head of distressed portfolio management. Prior to joining NB Group, Mr Holmberg founded Newberry Capital
Management LLC in 2006 and before that he founded and managed Ritchie Capital Management's Special Credit
Opportunities Group. He was also a managing director at Strategic Value Partners and Moore Strategic Value
Partners. He began investing in distressed and credit-oriented strategies as a portfolio manager at Continental
Bank/Bank of America, where he established the bank's global proprietary capital account. Mr Holmberg received a
BA in economics from Kenyon College and an MBA from the University of Chicago.
Christopher Legge (Chairman of the Audit Committee)
Chris Legge is a Guernsey resident and worked for Ernst & Young in Guernsey from 1983 to 2003. Having joined the
firm as an audit manager in 1983, he was appointed a partner in 1986 and managing partner in 1998. From 1990 to
1998, he was head of Audit and Accountancy and was responsible for the audits of a number of banking, insurance,
investment fund, property fund and other financial services clients. He also had responsibility for the firm’s training,
quality control and compliance functions. He was appointed managing partner for the Channel Islands region in 2000
and merged the business with Ernst & Young LLP in the United Kingdom. He retired from Ernst & Young in 2003.
Chris currently holds a number of non-executive directorships in the financial services sector. He is an FCA and holds
a BA (Hons) in Economics from the University of Manchester.
Stephen Vakil (Chairman of the Management Engagement Committee and Chairman of the Remuneration Committee and
Senior Independent Director)
After graduating with a BSc in economics from Bath University in 1983, Stephen Vakil joined L Messel & Co and
moved to Chase Manhattan in 1987 to focus on private client portfolio management. In 1989, he left to join Foster &
Braithwaite where he established the research function and subsequently became a director. Following Foster &
Braithwaite’s merger with Quilter Goodison to form Quilter & Co in 1996, Mr Vakil was given responsibility for the
London investment teams, the research department and marketing function. He was made a managing director in
2001. Having played a key role in a number of corporate transactions, Mr Vakil left Quilter Cheviot in 2013. He is an
Associate of the Society of Investment Professionals.
GOVERNANCE
|
Directors
30 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Report
The Directors present their report and Financial Statements of the Company and their report for the year ended 31 December 2023.
Share Capital
The number of shares in issue at 31 December 2023 was as follows:
Class A Shares 2
Ordinary Shares 15,382,770
Extended Life Shares 44,234,790
New Global Shares 27,821,698
Share Buybacks
At the Annual General Meeting (“AGM”) of the Company held on 28 June 2023, the Directors were granted the general authority to purchase
in the market up to 14.99% of the Ordinary Shares, 14.99% of the Extended Life Shares and 14.99% of the New Global Shares in issue (as at
28 June 2023). The latest authority will expire at the AGM to be held on 26 June 2024. Pursuant to this authority, and subject to the Law and
the discretion of the Directors, the Company may purchase shares of any of its classes in the market on an ongoing basis with a view to
addressing any imbalance between the supply of and demand for such shares, thereby increasing the NAV per share of the shares and
assisting in controlling the share price discount to NAV per share.
There were no buybacks of the Company’s Shares in 2023 as on 16 November 2020 the Company announced in its quarterly Factsheet that
the share buyback programme had been discontinued. The buyback programme was intended to narrow the discount, if any, during the
investment period. At this point of the harvest period, the priority, based on investor feedback, is the return of capital. The Directors intend to
seek annual renewal of this authority from Shareholders to retain flexibility.
Distributions
The Company will, from time to time, pay out income distributions by way of dividend in respect of each share class in accordance with the
Company’s dividend policy as set out below. In addition, any capital proceeds attributable to a share class (as determined by the Directors in
accordance with the Articles), will, at such times and in such amounts as the Directors shall in their absolute discretion determine, be
distributed to shareholders of that class pro rata to their respective holdings of the relevant shares. Further information on the Company’s
income and capital distribution policies can be found on page 7.
Dividend Policy
As set out in the Company’s Prospectus, the Company will pay out in respect of each class of shares an income distribution by way of
dividend, comprising all net income received on investments of the Company attributable to such class of shares. It is not anticipated that
income from the portfolio will be material and therefore any dividends may be on an ad-hoc basis. It is a requirement of an exception to the
United Kingdom offshore fund rules that all income from the Company’s Portfolio (after deduction of reasonable expenses) is to be paid to
investors. This policy should ensure that this requirement will be met. The exact amount of such dividend in respect of any class of Shares will
be variable depending on the amounts of income received by the Company attributable to such class of Shares and will only be made
available in accordance with applicable law at the relevant time, including the Law (and, in particular, will be subject to the Company passing
the solvency test contained in the Law at the relevant time). Furthermore, the amount of dividends paid in respect of one class of shares may
be different from that of another class. This policy will be put to a shareholder vote by way of separate resolution at the 2024 AGM.
GOVERNANCE |
Directors’ Report
31 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Report (continued)
Distributions made during the year
The following distributions were made:
Income distribution by way of dividend
There were no distributions by way of dividend for the year ended 31 December 2023.
Capital distributions by way of a compulsory partial redemption
ORDINARY SHARE CLASS EXTENDED LIFE SHARE CLASS NEW GLOBAL SHARE CLASS
DATE
DISTRIBUTION
AMOUNT
NUMBER
OF SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER
OF SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
02 May 2023
-
-
-
$8,149,711
8,487,514
$0.9602
£2,165,132
3,201,911
£0.6762
29 June 2023
-
-
-
$3,352,980
3,753,056
$0.8934
-
-
-
11 September 2023
-
-
-
$
3,754,972
3,640,656
$
1.0314
-
-
-
-
-
$15,257,663
15,881,226
£2,165,132
3,201,911
Substantial Share Interests
Based upon information deemed to be reliable as provided by the Company’s registrar as at 31 March 2024, the following shareholders owned
5% or more of the issued shares of the Company.
SUBSTANTIAL SHAREHOLDERS
NO. OF ORDINARY
SHARES
NO. OF EXTENDED
LIFE SHARES
NO. OF NEW
GLOBAL SHARES
PERCENTAGE
OF SHARE
CLASS (%)
HAREWOOD NOMINEES LIMITED 4046320 ACCT 13,007,692 84.56
LYNCHWOOD NOMINEES LIMITED 2006420 ACCT 3,320,557 7.51
ROCK (NOMINEES) LIMITED CSHGROSS ACCT 1,458,082 5.24
HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED
898873 ACCT 2,408,874 8.66
CITIBANK NOMINEES (IRELAND) DESIGNATED
ACTIVITY COMPANY CLRLUX ACCT 3,987,669 9.01
J P MORGAN SECURITIES LLC CLIENTSK ACCT 3,382,583 7.65
STATE STREET NOMINEES LIMITED OM04
2,631,648
3,802,890
5.95
13.67
NORTRUST NOMINEES LIMITED GSYA ACCT
9,633,085
5,074,890
21.78
18.24
STATE STREET NOMINEES LIMITED OM04
7,267,563
8,328,427
16.43
29.94
VIDACOS NOMINEES LIMITED 158765 ACCT 1,935,114 6.96
Note: shareholdings may be greater than 5% in the share class but may not be 5% in aggregate of the Company’s issued share capital.
GOVERNANCE |
Directors’ Report
32 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Report (continued)
Notifications of Shareholdings
In the year to 31 December 2023 the Company has been notified in accordance with Chapter 5 of the DTR (which covers the acquisition and
disposal of major shareholdings and voting rights), of the following voting rights as a shareholder of the Company. When more than one
notification has been received from any shareholder, only the latest notification is shown. For non-UK issuers, the thresholds prescribed under
DTR 5.1.2 for notification of holdings commence at 5%. Class A shares do not hold voting rights.
SHAREHOLDER
1
NUMBER OF SHARES
PERCENTAGE OF TOTAL
VOTING RIGHTS (%)
Witan Investment Trust plc
13,007,692
12.2%
Nortrust Nominees Limited
13,207,975
15.11%
Since the year end 31 December 2023 to the date of this report, there have been no notifications received by the Company.
Directorship in Public Companies (as at 25 April 2024)
COMPANY NAMES
EXCHANGE(S)
Mr John Hallam
NB Distressed Debt Investment Fund Limited
SFS, London
Real Estate Credit Investments Limited
London
Ruffer Illiquid Multi Strategies Fund 2015 Limited
The International Stock Exchange (“TISE”)
Mr Michael Holmberg
NB Distressed Debt Investment Fund Limited
SFS, London
Mr Christopher Legge
NB Distressed Debt Investment Fund Limited
SFS, London
Mr Stephen Vakil
NB Distressed Debt Investment Fund Limited
SFS, London
Portfolio
REIT PLC
TISE
GOVERNANCE
|
Directors’ Report
33 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Report (continued)
Anti-Bribery and Corruption Policy
The Board of the Company has a zero-tolerance approach to instances of bribery and corruption. Accordingly, it expressly prohibits any
Director or associated persons, when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or
authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit for them or for the Company. The
Investment Manager has also adopted a zero-tolerance approach to instances of bribery and corruption.
The Board insists on strict observance with these same standards by its service providers in their activities for the Company and continues to
refine its process in this regard. The Company’s policy is available on its website at www.nbddif.com/corporate_governance.html
Climate Change
In 2019, the Board identified concerns relating to climate change as an emerging risk and since then has closely monitored regulatory and
other developments in this area. The Board is conscious of its own impact on the environment, despite being an investment company with no
employees, and has committed, on a going forward basis, to offset its carbon-emissions arising from the air travel by the members of the
Board undertaking Company related business. In addition, the Board makes extensive use of teleconferencing facilities thus limiting the
amount of travel, all board papers are produced and hosted digitally via a dedicated board web-portal and the Company makes relevant
enquiries to our key service providers during face-to-face meetings about their initiatives and attitudes to climate change.
Criminal Facilitation of Tax Evasion Policy
The Board of the Company has a zero-tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of
tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions in place to prevent the
criminal facilitation of tax evasion by their own associated persons and will not work with service providers who do not demonstrate the same
zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Company’s policy
is available on its website at www.nbddif.com/corporate_governance.html.
Employee Engagement & Business Relationships
The Company conducts its core activities through third-party service providers and does not have any employees. The Board recognises the
benefits of fostering strong business relationships with its key service providers and seeks to ensure each is committed to the performance of
their respective duties to a high standard and, where practicable, that each provider is motivated to adding value within their sphere of activity.
Details on the Board’s approach to service provider engagement and performance review are contained in the Management Engagement
Committee Report.
Employees and Socially Responsible Investment
The Company has a management contract with the Investment Manager. It has no employees and all of its Directors are non-executive, with
day-to-day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Company’s
main activities are carried out by Neuberger Berman, which is a signatory of the Principles of Responsible Investment and has an ongoing
commitment to strengthening and refining its environmental, social and governance approach. An overview of Neuberger Berman’s Principles
for Responsible Investment is detailed on its website at www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx.
Gender Metrics
The current Board members are male. More information on the Board’s consideration of diversity is given in the Corporate Governance Report
on page 35.
General Data Protection Regulation
The Company takes privacy and security of your information seriously and will only use such personal information as set out in the Company’s
privacy notice which can be found on the Company’s website at: https://www.nbddif.com/pdf/NB_Privacy_Notice_2021.pdf.
Global Greenhouse Gas Emissions
The Company has no significant greenhouse gas emissions to report from its operations for the year to 31 December 2023, nor does it have
responsibility for any other emissions producing sources.
GOVERNANCE
|
Directors’ Report
34 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Report (continued)
The Modern Slavery Act 2015 (“MSA”)
The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the organisation. As the
Company has no employees and does not supply goods or services, the MSA does not directly apply to it. The MSA requirements more
appropriately relate to the Investment Manager which is a signatory of the Principles of Responsible Investment (please see “Employees and
Socially Responsible Investment” above) which include social factors such as working conditions, including slavery and child labour. The MSA
of the Investment Manager is available on its website at NB.com.
Disclosure of Information to Auditors
The Directors who were members of the Board at the time of approving this report are listed on page 29. Each of those Directors confirms that:
to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the auditors are
unaware; and
he or she has taken all steps a director might reasonably be expected to have taken to be aware of relevant audit information and to
establish that the Company’s auditors are aware of that information.
For and on behalf of the Board.
John Hallam Christopher Legge
Chairman Director
25 April 2024 25 April 2024
GOVERNANCE
|
Directors’ Report
35 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Corporate Governance Report
Applicable Corporate Governance Codes
As the Company is listed on the SFS it is only required to follow the GFSC code of corporate governance (the “Code”), applicable to Guernsey
companies. However, the Board has chosen to follow the AIC Code of Corporate Governance published in February 2013 and last amended
in February 2019 (the “AIC Code”). The AIC Code addresses all the principles set out in the Code as well as setting out additional principles
and recommendations on issues that are of specific relevance to the Company.
On 1 January 2012, the GFSC’s “Finance Sector Code of Corporate Governance” came into effect and was amended in February 2016, and
again in June 2021 to amend Principle 5 for boards to consider climate change (5.2.1). The GFSC has stated in its Code that companies
which report against the UK Corporate Governance Code (the “UK Code”) or the AIC Code are deemed to meet their Code, and need take no
further action.
The Board of the Company has considered the principles and recommendations of the 2019 AIC Code.
The Board considers that reporting against the principles and recommendations of the AIC Code will provide more relevant information to
shareholders. Copies of the AIC Code can be found at www.theaic.co.uk.
Corporate Governance Statement
Throughout the year ended 31 December 2023 the Company has complied with the recommendations of the AIC Code, except where
explanations have been provided.
The Directors believe that this Annual Report and Audited Financial Statements, presents a fair, balanced and understandable assessment of
the Company’s position and prospects, and provides the information necessary for shareholders to assess the Company’s performance,
business model and strategy.
The Company complies with the corporate governance statement requirements pursuant to the FCA’s DTRs by virtue of the information
included in the Corporate Governance section of the Annual Report together with information contained in the Strategic Report and the
Directors’ Report.
Our Governance Framework
Chairman: John Hallam
Responsibilities:
The leadership, operation and governance of the Board, ensuring effectiveness, and setting the agenda for the Board.
More details are provided on pages 36 to 42.
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.
GOVERNANCE |
Corporate Governance Report
36 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Corporate Governance Report (continued)
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 on pages 43 to 46.
Responsibilities:
To review the performance of all service providers (including the
Investment Manager)
More details are provided on pages 47 to 48.
REMUNERATION COMMITTEE
INSIDE INFORMATION COMMITTEE
Members:
Stephen Vakil (Chairman)
John Hallam
Christopher Legge
Members:
John Hallam (Chairman)
Michael Holmberg
Christopher Legge
Stephen Vakil
Responsibilities:
To review the on-going appropriateness and relevance of the
remuneration policy.
More details are provided on page 50.
Responsibilities:
To identify inside information and monitor the disclosure and control
of inside information.
More details are provided on page 49.
.
GOVERNANCE |
Corporate Governance Report
37 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
Board Independence and Composition
The biographical details of the Directors holding office at the date of this report are listed on page 29 and demonstrate a breadth of investment,
accounting and professional experience.
As of April 2024 John Hallam had served on the Board for over thirteen years, the Board remains satisfied that John Hallam continues to
exercise independent judgement, and that retaining the depth of knowledge of the Company held by John is in the best interests of the
Company as a whole, given the current position of the Company. Mr Hallam was re-elected to the Board at the 2023 AGM with 95.88% of the
votes cast being in favour and expects to stand for re-election at the next AGM.
John Hallam, Christopher Legge and Stephen Vakil are considered independent from the Investment Manager. Michael Holmberg is deemed
not independent as he is employed by a Neuberger Berman group company.
The Board believes that Mr Holmberg brings a significant amount of experience and expertise to the Board; however, as a non-independent
Director, Mr Holmberg does not sit on the Audit Committee, Remuneration Committee or the Management Engagement Committee and is not
involved in any matters discussed by the Board concerning the evaluation of the performance of the Investment Manager.
The Directors review their independence annually.
The Company Secretary through its representative acts as Secretary to the Board and Committees and in doing so it:
assists the Chairman in ensuring that all Directors have full and timely access to all relevant documentation;
will organise induction of new Directors; and
is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.
Directors’ Appointment
No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company, copies of which are
available for review by shareholders at the Registered Office and will be available at the 2024 AGM. The length of service of each Director is
shown in the Directors’ Remuneration Report on pages 51 to 53. Any Director may resign in writing to the Board at any time.
The Board has formal, rigorous and transparent procedures for the appointment of additional directors. Candidates are identified and selected
on merit against objective criteria and with due regard to the benefits of diversity on the Board, including gender. The Board undertakes a
broad search which includes obtaining lists of potential candidates from a variety of sources leading to agreed short-lists. Interviews are then
held with potential candidates. The skills, experience and time availability of each candidate is considered by the Board with due regard to the
skills and experience necessary to replace those lost by retirements or otherwise considered desirable to strengthen the Board. Short-listed
candidates are invited to meet the Chairman and the Investment Manager and feedback is provided to the Board prior to selection.
In accordance with the AIC Code all current Directors will offer themselves for re-election at the 2024 AGM of the Company; John Hallam,
Michael Holmberg, Christopher Legge and Stephen Vakil were re-elected as Directors at the AGM on 28 June 2023. The names and
biographies of the Directors holding office at the date of this report are listed on page 29.
38 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
Tenure of Non-Executive Directors
The Board has adopted a policy on tenure that is considered appropriate for an investment company. Mr Hallam has served as a director of
the Company for over thirteen years. The Board does not believe that length of service, by itself, leads to a closer relationship with the
Investment Manager or necessarily affects a Director’s independence. The Board has sought to appoint Directors with past and current
experience of various areas relevant to the Company’s business. The Board agreed to adopt an amended tenure and succession policy in
February 2018 which is reflective of the Board’s belief that it is not in the best interests of shareholders to replenish the Board at the current
time when the long-term outlook of the umbrella of the Company is unknown, save for the appointment of directors to fill a key vacant position
with due regard to the skills and experience necessary to replace those lost by Directors’ retirements.
Directors are expected to devote such time as is necessary to enable them to discharge their duties. Other business relationships, including
those that conflict or may potentially conflict with the interests of the Company, are taken into account when appointing Board members and
are monitored on a regular basis.
Re-election of Directors
John Hallam, Michael Holmberg, Christopher Legge and Stephen Vakil have confirmed their intention to submit themselves for re-election at
the next AGM to be held on 26 June 2024.
The Board recognises that the Portfolios are now in their harvest periods and, as such, it believes that it is in the best interests of shareholders
and the Company to maintain the current Board composition for the time being in order to benefit from the Directors’ technical knowledge and
experience of managing the Company’s affairs as the assets continue to wind down. The Board confirmed that the contributions made by the
Directors offering themselves for re-election at the AGM on 26 June 2024 continue to be effective and that the Company should support their
re-election.
The dates of appointment of all Directors are provided in the Directors’ Remuneration Committee Report on page 53.
Board Diversity
The Board considers that its members have a balance of skills and experience which are relevant to the Company. The Board notes the
Davies Report, Hampton-Alexander Review and the Parker Review, and believes in the value and importance of diversity in the boardroom but
it does not consider it is appropriate or in the interests of the Company and its shareholders particularly given current circumstances to set
prescriptive targets for gender, ethnicity, nationality or any other criterion of representation on the Board. At 31 December 2023, the Board
members were male. The Board continues to focus on encouraging diversity of business skills and experience, recognising that directors with
diverse skills sets, capabilities and experience gained from different backgrounds enhances the Board but has no current plans to refresh the
Board.
Board Responsibilities
The Board reviews all aspects of the Company’s affairs including the setting and monitoring of investment strategy and the review of
investment performance. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual
investments, in line with the investment policy and strategy set by the Board. The Investment Manager together with the Company Secretary
and Administrator also ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information
relating to the Company and its portfolio of investments. Representatives of the Investment Manager attend each Board meeting, enabling the
Directors to question any matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the full Board
have been defined and a procedure adopted for Directors in the furtherance of their duties to take independent professional advice at the
expense of the Company. This is available on the Company’s website www.nbddif.com.
39 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
Conflict of Interests
Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise and the Board may impose restrictions
or refuse to authorise conflicts if deemed appropriate. The Directors have undertaken to notify the Company Secretary as soon as they
become aware of any new potential conflicts of interest that would need to be approved by the Board. Only Directors who have no material
interest in the matter being considered will be able to participate in the Board approval process.
It has also been agreed that the Directors will advise the Chairman and the Company Secretary in advance of any proposed external
appointment.
None of the Directors had a material interest in any contract, which is significant to the Company’s business during the year ended 31
December 2023, except Michael Holmberg, being an employee of the Neuberger Berman Group of which the Investment Manager is part of.
The Directors’ Remuneration Report on pages 51 to 53 provides information on the remuneration and interests of the Directors.
Performance Evaluation
The performance of the Board, its Committees and the Directors, including the Chairman, was reviewed by the Board on 14 November 2023,
by means of an internal questionnaire. The Company Secretary collated the results of the questionnaires and the consolidated results were
reviewed and discussed by the Board and by the Remuneration Committee. The Chairman reviewed each individual Director’s contribution.
The 2023 evaluation concluded that:
the performance of the Board, its committees, the Chairman and each of the Directors continues to be effective;
Mr Hallam, Mr Legge and Mr Vakil are unanimously considered independent;
all current Directors should be proposed for re-election at the 2024 AGM; and
the Board was considered to have an appropriate mix of skills and experience.
The Board intends to conduct another internal board evaluation in November 2024, and will continue to review its procedures, its effectiveness
and development in the year ahead.
The Directors noted that all three share classes were currently in harvest phase and agreed that, due to the position of the Company, it was
not beneficial or necessary to incur the costs of an externally facilitated external evaluation. The Directors agreed that if the Company’s life
were extended, further consideration would be given to an externally facilitated evaluation and therefore agreed to keep this position under
review.
The Remuneration Committee (excluding John Hallam) led by the Chairman of the Remuneration Committee reviewed the Chairman. It was
agreed that the Chairman was well-regarded by the other Board members and that he provided excellent depth of knowledge of the Company.
In addition, the Chairman has actively offered himself to meet with shareholders over the year.
Induction/Information and Professional Development
Directors are provided, on a regular basis, with key information on the Company’s policies, regulatory requirements and its internal controls.
Regulatory and legislative changes affecting Directors’ responsibilities are advised to the Board as they arise along with changes to best
practice by, amongst others, the Company Secretary and the Auditor. Advisers to the Company also prepare reports for the Board from time to
time on relevant topics and issues. In addition, Directors attend relevant seminars and events to allow them continually to refresh their skills
and knowledge and keep up with changes within the investment company industry. The Chairman reviewed the training and development
needs of each Director during the annual Board evaluation process. The Chairman confirmed that all directors actively kept up to date with
industry developments and issues.
40 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
Independent Advice
The Board recognises that there may be occasions when one or more of the Directors feels it is necessary to take independent legal advice at
the Company’s expense. A procedure is set out in the Directors’ letters of appointment to enable them to do so.
Indemnities
To the extent permitted by the Law, the Company’s Articles provide an indemnity for the Directors against any liability except such (if any) as
they shall incur by or through their own breach of trust, breach of duty or negligence. Each Director has an Instrument of Indemnity with the
Company.
During the year, the Company has maintained insurance cover for its Directors and Officers under a Directors’ and Officers’ liability insurance
policy.
Relationship with the Investment Manager, Company Secretary, Administrator and Sub-Administrator
All of the Company’s management and administration functions are delegated to external parties including the management of the investment
Portfolios, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial,
administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality
and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Management
Engagement Committee is responsible for the oversight of service providers.
The Board receives and considers reports regularly from the Investment Manager and ad hoc reports and information are supplied to the
Board as required. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual
investments. The Investment Manager, Company Secretary, Administrator and Sub-Administrator also ensure that all Directors receive, in a
timely manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager, Administrator and
Sub-Administrator attend each Board meeting enabling the Directors to probe further into matters of concern.
The Directors have access to the advice and service of the corporate Company Secretary through its appointed representative who is
responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The
Board, the Investment Manager, Company Secretary, the Administrator and Sub-Administrator operate in a supportive, co-operative and open
environment.
Shareholder Engagement
The Board believes that the maintenance of good relations with shareholders is important for the long-term prospects of the Company. It has,
since admission, sought engagement with investors. Where appropriate, the Chairman, and other Directors are available for discussion about
governance and strategy with major shareholders and the Chairman ensures communication of shareholders’ views to the Board. The Board
receives feedback on the views of shareholders from its Corporate Broker (“Broker”) and the Investment Manager, and shareholders are
welcome to contact the Directors at any time via the Company Secretary by email at: NB.Distressed@suntera.com.
The Directors believe that the AGM provides an appropriate forum for shareholders to communicate with the Board and encourages
participation. There is an opportunity for individual shareholders to question the Chairman of the Board, the Audit Committee, Management
Engagement Committee, Remuneration Committee and Inside Information Committee at the AGM. The Board also welcomes the opportunity
to meet with investors on a one-to-one basis, upon request.
The Board assesses the results of AGMs and will consider whether there is a significant number of votes not lodged in favour of a resolution.
Where the Board considers that a significant number of votes have not been lodged in favour of a resolution, an immediate announcement will
be made and further disclosures will be made in the next Annual Report. The Broker and the Investment Manager will seek feedback from
investors. In addition to this the Broker and the Investment Manager will provide the Board with feedback that has been received from
investors about the performance of the Company and the Investment Manager.
Key Stakeholder Groups
The Company identifies its key stakeholder groups as follows:
Shareholders
All Board decisions are made with the Company’s success in mind, which is ultimately for the long-term benefit of our shareholders.
41 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
Key Stakeholder Groups (continued)
Service Providers
Our service providers’ relationships are vital to our overall success, so as a Board we carefully consider the selection of, and engagement and
continued relationship with our key service providers being the Investment Manager, Administrator, Custodian, Broker, Legal Advisers,
Registrar, Auditor and Company Secretary.
The Board recognises the benefits of fostering strong business relationships with its key service providers and seeks to ensure each is
committed to the performance of their respective duties to a high standard and, where practicable, that each provider is motivated to adding
value within their sphere of activity.
The Board has delegated various duties to external parties including the management of the investment portfolio, the custodial services
(including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting
services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered,
including the control systems in operation in so far as they relate to the affairs of the Company.
The Board continues to have regular face-to-face meetings with all key service providers.
Stakeholders and Section 172
Whilst only directly applicable to UK domiciled companies, the intention of the AIC Code is that matters set out in section 172 of the UK
Companies Act, 2006 are reported. The following disclosures offer some insight into how the Board uses its meetings as a mechanism for
discharging its duties under Provision 5 of the AIC Code, including the breadth of matters it discussed and debated during the year and the
key stakeholder groups that were central to those discussions. The Board’s commitment to maintaining the high-standards of corporate
governance recommended in the AIC Code, combined with the directors’ duties enshrined in Company law, the constitutive documents, the
Disclosure Guidance and Transparency Rules, and Market Abuse Regulation, ensures that shareholders are provided with frequent and
comprehensive information concerning the Company and its activities via the Company’s website and Regulatory Information Service (“RIS”)
announcements on the London Stock Exchange such as the quarterly factsheets.
Each Board meeting follows a carefully tailored agenda agreed in advance by the Board and Company Secretary. A typical meeting will
comprise reports on current financial and operational performance from the Administrator, market update from the Broker, portfolio
performance from the Investment Manager, with regulatory and governance updates from the Company Secretary and where required, a
detailed deep dive into an area of particular strategic importance or concern. Through oversight and control, we have in place suitable policies
to ensure the Company maintains high standards of business conduct, treats customers fairly, and employ high standards of corporate
governance.
Whilst the primary duty of the Directors is owed to the Company as a whole, the Board considers as part of its decision-making process the
interests of all stakeholders. Particular consideration being given to the continued alignment between the activities of the Company and those
that contribute to delivering the Board’s strategy, which include the Investment Manager, Administrator, and the Company Secretary.
The Annual Report, Key Information Documents and quarterly fact sheets are available to provide shareholders with a clear understanding of
the Company’s activities and its results. This information is supplemented by the daily calculation and publication via a Regulatory Information
Service of the net asset value of the Company’s Ordinary Shares, Extended Life Shares and New Global Shares. All documents issued by the
Company can be viewed on the Company’s website at www.nbddif.com.
The Board respects and welcomes the views of all stakeholders. Any queries or areas of concern regarding the Company’s operations can be
raised with the Company Secretary.
2024 AGM
The 2024 AGM will be held in Guernsey on 26 June 2024. The notice for the AGM will set out the ordinary and special resolutions to be
proposed at the meeting. Separate resolutions are proposed for each substantive issue. Shareholders wishing to lodge questions in advance
of the meeting and specifically related to the resolutions proposed are invited to do so by writing to the Company Secretary at the address
given on page 90.
Voting on all resolutions at the AGM will be on a poll. The proxy votes cast, including details of votes withheld are disclosed to those in
attendance at the meeting and the results are published on the Company’s website and announced via a Regulatory Information Service.
Where a significant number of votes have been lodged against a proposed resolution (being greater than 20%), in accordance with the AIC
Code published in February 2019, it is the Board’s policy that the Board will identify those shareholders and further understand their views to
address the concerns of the Company’s shareholders. No significant votes were cast against the resolutions proposed at the 2023 AGM.
42 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Corporate Governance Report
Corporate Governance Report (continued)
2024 AGM (continued)
Board Meetings
The Board meets at least four times a year. Certain matters are considered at all Board meetings including Portfolio composition and asset
realisation strategy, capital repayments and income distributions by way of dividend, NAV and share price performance and associated
matters such as asset allocation, risks, strategy, marketing and investor relations, peer group information and industry issues. Consideration is
also given to administration and corporate governance matters, where applicable reports are received from Board committees.
Directors unable to attend a board meeting are provided with the board papers and can discuss issues arising in an informal meeting with the
Chairman or another non-executive Director.
The Chairman is responsible for ensuring the Directors receive complete information in a timely manner concerning all matters which require
consideration by the Board. Through the Board’s ongoing shareholder engagement and the reports produced by each key service provider,
the Directors are satisfied that sufficient information is provided so as to ensure such matters are taken into consideration as part of the
Board’s decision-making process.
Attendance at scheduled meetings of the Board and its committees in the 2023 financial year
BOARD
AUDIT
COMMITTEE
MANAGEMENT
ENGAGEMENT
COMMITTEE
REMUNERATION
COMMITTEE
INSIDE INFORMATION
COMMITTEE
Number of meetings during the year 4 4 1 1 1
John Hallam 4 N/A 1 1 1
Christopher Legge 4 4 1 1 1
Michael Holmberg 4 N/A N/A N/A N/A
Stephen Vakil 4 4 1 1 1
In addition to these meetings, 3 ad-hoc board and board committee meetings were held during the year for various matters, primarily of an
administrative nature. These meetings were attended by those Directors available at the time.
Board Committees
The Board has established an Audit Committee, Management Engagement Committee, Remuneration Committee and an Inside Information
Committee with defined terms of reference and duties. Further details of these committees can be found in their reports on pages 43 to 50.
The terms of reference for each committee can be found on the Company’s website at www.nbddif.com.
The Board feels that due to the size and structure of the Company, establishing a Nomination Committee is unnecessary and that the Board
as a whole will consider matters relating to appointment of Directors.
For and on behalf of the Board.
John Hallam Christopher Legge
Chairman Director
25 April 2024 25 April 2024
43 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
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.
44 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Audit Committee Report (continued)
Main Activities during the year
The Audit Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, risk
management and the assessment of internal controls. It also manages the Company’s relationship with the external auditor. Meetings
of the Committee generally take place prior to a Company Board meeting. The Audit Committee reports to the Board as part of a
separate agenda item on its activities and matters of particular relevance to Board members in the conduct of their work.
The Board requested that the Audit Committee advise them on whether it believes the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance,
business model and strategy and the Audit Committee confirmed this to be the case.
The Audit Committee’s terms of reference were updated during the year and can be found on the Company’s website www.nbddif.com.
At its four meetings during the year, the Committee focused on:
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is to review with the Investment Manager, Administrator and the
external auditor the appropriateness of the Annual Financial Statements concentrating on, amongst other matters:
the quality and acceptability of accounting policies and practices;
the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting
requirements;
material areas in which significant judgements have been applied or there has been discussion with the external auditor;
the viability of the Company, taking into account the principal and emerging risks it faces;
whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s performance, business model and strategy; and
any correspondence from regulators in relation to financial reporting.
To aid its review, the Audit Committee considered reports from the Investment Manager, Administrator, Sub-Administrator, Company
Secretary and also reports from the external auditor on the outcomes of their half-year review and annual audit.
The members of the Audit Committee had meetings with KPMG, where their findings in respect of both the Interim Review and the
Annual Audit were reported.
Significant Issues
In relation to the Annual Report and Financial Statements for the year ended 31 December 2023, the significant issue considered by the
Audit Committee was the valuation of the Company’s investments.
The Committee received a report from the Investment Manager on the valuation of the Portfolios and on the assumptions used in
valuing the Portfolios. It analysed the investment Portfolios of the Company in terms of investment mix, fair value hierarchy and
valuation and held detailed discussions with the Investment Manager regarding the methodology and procedures used in valuing the
Portfolios.
The Committee discussed in depth with KPMG their approach to testing the appropriateness and robustness of the valuation
methodology applied by the Investment Manager to the Company’s Portfolios. KPMG did not report any significant differences between
the valuations used by the Company and the results of the work performed during their testing process. Based on their above review
and analysis the Audit Committee confirmed that it is satisfied with the valuation of the investments.
GOVERNANCE |
Audit Committee Report
45 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Audit Committee Report (continued)
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 on pages 83 to 84.
By means of the procedures set out above, the Audit Committee confirms that it has reviewed the effectiveness of the Company’s
system of internal controls for the year ended 31 December 2023 and to the date of approval of this Annual Report and that no
concerns have been noted.
External Audit
The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The
Audit Committee received a detailed audit plan from KPMG, identifying their assessment of these significant risks. For the 2023
financial year the significant risk identified was in relation to the valuation of investments. This risk is tracked through the year and the
Committee has considered the work done by the auditor to challenge management’s assumptions and estimates around these areas.
The Committee has assessed the effectiveness of the audit process in addressing these matters through the reports received from
KPMG at both the half-year and year end. In addition, the Committee has sought feedback from the Investment Manager, the
Administrator and Sub-administrator on the effectiveness of the audit process. For the 2023 financial year the Committee is satisfied
that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to
be appropriate.
The Audit Committee considers the re-appointment of the external auditor, including the rotation of the audit partner, and assesses their
independence on an annual basis. The external auditor is required to rotate the audit partner responsible for the Company audit every
five years. The Company’s current audit partner, Barry Ryan, took over the role as lead audit engagement partner for the year ended 31
December 2019.
KPMG has been the Company’s external auditor since its stock exchange listing in 2010 (13 years). The Company has not formally
tendered the audit since then. The Audit Committee would normally consider putting the Company’s audit out to tender at least every
ten years (with the maximum duration of a continuous audit engagement being twenty years) and has given consideration to doing so
this coming year. However it concluded that, given the current expectation of the wind down of the Company share classes, it was not
in the best interests of the Company to do so. In its assessment of the independence of the auditor, the Audit Committee receives
details of any relationships between the Company and KPMG that may have a bearing on their independence and receives
confirmation from them that they are independent of the Company.
The Audit Committee approved the fees for audit services for 2023 after a review of the level and nature of work to be performed. The
Board was satisfied that the fees were appropriate for the scope of the work required.
GOVERNANCE |
Audit Committee Report
46 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Audit Committee Report (continued)
Non-Audit Services
To safeguard the objectivity and independence of the external auditor from becoming compromised, the Audit Committee has a policy
governing the engagement of the external auditor to provide non-audit services. The Committee made amendments to this policy in
April 2023 and follows the certain provisions of the FRC’s Revised Ethical Standard 2019 relating to non-audit services as it applies to
public interest entities. The Audit Committee must be advised by the commissioning entity/person, and by the audit firm, of all
assignments undertaken by the external auditors that fall within the pre-approved categories as soon as practicable.
All non-audit services require prior approval by the Audit Committee. In respect of each calendar year the Audit Committee monitors the
provision of non-audit services by receiving at least half yearly a list of the non-audit services provided (and expected to be provided) by
the external auditor in that calendar year, and the fees involved, so that the Audit Committee can consider the impact on auditors’
objectivity. The Audit Committee’s policy on the Independence of External Auditor (including the provision of non-audit services) is
available on its website at www.nbddif.com.
Auditor’s Remuneration
31 DECEMBER 202
3
(£)
Audit
(Guernsey)
183,600
Audit related services (review of interim report)
(Guernsey)
44,200
Total
227,800
Appointment and Independence
The Audit Committee has therefore recommended to the Board that KPMG be reappointed as external auditor for the year ended 31
December 2024, and to authorise the Directors to determine their remuneration. Accordingly, a resolution proposing the reappointment
of KPMG as the Company’s auditor will be put to the shareholders at the 2024 AGM on 26 June 2024.
There are no contractual obligations restricting the Committee’s choice of external auditor and the Company does not indemnify the
external auditor.
The Committee’s activities formed part of the Board evaluation performed in the year. Details of this process can be found under
“Performance evaluation” on page 39. The Committee was satisfied that it had undertaken its duties efficiently and effectively.
Christopher Legge
On behalf of the Audit Committee
25 April 2024
GOVERNANCE |
Audit Committee Report
47 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Management Engagement Committee Report
Membership
Stephen Vakil – Chairman (Senior Independent non-executive Director)
John Hallam (Chairman of the Company and Independent non-executive Director)
Christopher Legge (Independent non-executive Director)
Key Objectives
To review performance of all service providers (including the Investment Manager).
Responsibilities
To review annually the performance, relationships and contractual terms of all service providers (including the Investment
Manager);
Review and make recommendations on any proposed amendment to the Investment Manager Agreement (“IMA”);
To review the performance of, and contractual arrangements with the Investment Manager including:
- Monitor and evaluate the Investment Manager’s performance and, if necessary, provide appropriate guidance;
- To consider whether an independent appraisal of the Investment Manager’s services should be made;
- To review the level and method of remuneration and notice period, using peer group comparisons (where available); and
- To ensure that the Investment Manager has a sound system of risk management and internal controls and that these are
maintained to safeguard shareholders’ investment and the Company’s assets.
Committee Meetings
Only members of the Management Engagement Committee and the Secretary have the right to attend Committee meetings. However,
representatives of the Investment Manager and Administrator may be invited by the Committee to attend meetings as and when
appropriate.
Main Activities during the year
The Management Engagement Committee met once during the year and reviewed performance, standard and value for money of the
Company’s service providers and the Investment Manager. The Management Engagement Committee reviewed the contractual terms,
disaster recovery and business continuity arrangements, information security arrangements, details of anti-bribery and corruption
policies, anti-facilitation of tax evasion policies, and the level of professional indemnity insurance of all service providers as at 14
November 2023, including the Investment Manager.
The Management Engagement Committee reviewed the Terms of Reference for the Committee and considered that they remained
appropriate.
Continued Appointment of the Investment Manager and Other Service Providers
The Board reviews investment performance at each Board meeting and the performance of the Company’s service providers are
reviewed annually as part of the Management Engagement Committee’s annual review.
Taking into consideration supplementary guidance issued by the AIC in 2020 which described certain measures by which investment
companies may assess the relationship with the manager, in November 2023 the Board undertook an enhanced qualitative assessment
of the performance of the Investment Manager. The feedback from this assessment confirmed that the Investment Manager’s focus
remained on the performance of their core duties, and that there existed a high level of congruence between the duties of the
Investment Manager and the objectives of the Company. The Board does not consider it necessary to obtain an independent appraisal
of the Investment Manager’s services.
GOVERNANCE |
Management Engagement Committee Report
48 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Management Engagement Committee Report (continued)
Continued Appointment of the Investment Manager and Other Service Providers (continued)
As a result of the 2023 annual review it is the opinion of the Directors that the continued appointment of the current service providers,
including the Investment Manager, on the terms agreed is in the best interests of the Company’s shareholders as a whole. The
Investment Manager has extensive investment management resources and wide experience in managing portfolios of distressed
investments.
Stephen Vakil
On behalf of the Management Engagement Committee
25 April 2024
GOVERNANCE |
Management Engagement Committee Report
49 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Inside Information Committee Report
Membership
John Hallam (Chairman of the Company and Independent non-executive Director)
Michael Holmberg (non-executive Director)
Christopher Legge (Independent non-executive Director)
Stephen Vakil (Senior Independent non-executive Director)
Key Objectives
To identify inside information and monitor the disclosure and control of inside information.
Responsibilities
Identify inside information as it arises;
Review and prepare project insider lists as required; and
Consider the need to announce or to delay the announcement of inside information.
Committee Meetings
Only members of the Inside Information Committee and the Secretary have the right to attend Inside Information Committee meetings.
However, representatives of the Investment Manager and Administrator may be invited by the Inside Information Committee to attend
meetings as and when appropriate.
Main Activities During the year
The Inside Information Committee met on 16 March 2023 and the Inside Information Committee reviewed its Terms of Reference, the
Company’s policies and procedures for inside information and personal dealing. There was no update made on the Inside Information
Committee’s terms of reference in 2023 and it was agreed that the policies and procedures remained relevant and accurate.
There were no delays to the disclosure of information during the year.
John Hallam
On behalf of the Inside Information Committee
25 April 2024
GOVERNANCE |
Inside Information Committee Report
50 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Remuneration Committee Report
Membership
Stephen Vakil – Chairman (Senior Independent non-executive Director)
John Hallam (Chairman of the Company and Independent non-executive Director)
Christopher Legge (Independent non-executive Director)
Key Objectives
To review the ongoing appropriateness and relevance of the Company’s remuneration policy.
Responsibilities
Determine the remuneration of the Directors;
Prepare an Annual Report on Directors’ remuneration;
Consider the need to appoint external remuneration consultants; and
Oversee the performance evaluation of the Board; its committees and individual directors.
Committee Meetings
Only members of the Remuneration Committee and the Secretary have the right to attend Remuneration Committee meetings. However,
representatives of the Investment Manager and Administrator may be invited by the Remuneration Committee to attend meetings as and when
appropriate.
Main Activities During the year
The Remuneration Committee met once during the year and reviewed the Directors’ remuneration. The Remuneration Committee’s terms of
reference were updated during the year and can be found on the Company’s website www.nbddif.com.
The Remuneration Committee considered the Directors’ Remuneration and agreed that the current policy remained appropriate.
A detailed Directors’ Remuneration report to shareholders from the Remuneration Committee is contained on pages 51 to 53.
Stephen Vakil
On behalf of the Remuneration Committee
25 April 2024
GOVERNANCE |
Remuneration Committee Report
51 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Remuneration Report
Annual Statement
The following report describes how the Board has applied the principles relating to Directors’ remuneration. An ordinary resolution to ratify this
report will be proposed at the AGM to be held on 26 June 2024.
Directors’ Fees
The Company paid the following fees to the Directors for the year ended 31 December 2023. These fees have remained unchanged since
2014.
ROLE
TOTAL BOARD
FEES ($)
TOTAL BOARD
FEES (£)
John Hallam
Chairman
60,000
10,000
Michael Holmberg
1
non
-
executive Director
-
-
Christopher Legge
non
-
executive Director and Chairman of the Audit Committee
50,000
10,000
Stephen Vakil
non-executive Director, Chairman of the Remuneration
Committee and Chairman of Management Engagement
Committee
45,000
10,000
Total
155,000
30,000
The Company paid the following fees to the Directors for the year ended 31 December 2022:
ROLE
TOTAL
BOARD
FEES
(
$
)
TOTAL
BOARD
FEES
(
£
)
John Hallam
Chairman
60,000
10,000
Michael Holmberg
1
non
-
executive Director
-
-
Christopher
Legge
non
-
executive Director
and Chairman of the Audit Committee
50,000
10,000
Stephen Vakil
non-executive Director, Chairman of the Remuneration
Committee and Chairman of Management Engagement
Committee
45,000
10,000
Total
155,000
30,000
1
Michael Holmberg has waived his right to Director fees.
No other remuneration was paid or payable by the Company during the year to any of the Directors (2022: $Nil).
Remuneration Policy
The determination of the Directors’ fees is a matter dealt with by the Board. The Board considers the remuneration policy annually to
ensure that it remains appropriately positioned. The Board reviewed the fees paid to the boards of similar investment companies. No
Director is involved in decisions relating to his or her own remuneration.
No Director has a service contract with the Company and Director appointments may be terminated at any time with no compensation
payable at termination.
GOVERNANCE |
Directors’ Remuneration Report
52 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Remuneration Report (continued)
Remuneration Policy (continued)
The Company’s policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. No Director has any
entitlement to a pension and the Company has not awarded any share options or long-term performance incentives to any of the
Directors. No element of the Directors’ remuneration is performance related.
Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties. The Company’s
policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company’s affairs and the
responsibilities borne by the Directors and should be sufficient to enable high calibre candidates to be recruited. The policy is for the
Chairman of the Board and Chairman of the Audit Committee to be paid a higher fee than the other Directors in recognition of their
more onerous roles and additional time spent performing their duties. The Board may amend the level of remuneration paid within the
limits of the Company’s Articles. In 2017, the remuneration policy needed to be reviewed by attributing the company as a whole to the
individual share classes. The aggregate remuneration for each director has not changed since 2014.
The remuneration policy reflects the changing status of the Company as the existing Portfolios are realised as follows:
Company
Fee (USD)
NBDD Fee
(USD)
NBDX Fee
(
USD)
NBDG Fee
(GBP)
Total
(
USD
)
Total
(
GBP
)
Chairman
40,000
10,000
10,000
10,000
60,000
10,000
A
udit Committee
Chairman
30,000
10,000
10,000
10,000
50,000
10,000
Other Directors
25,000
10,000
10,000
10,000
45,000
10,000
Directors’ Fees Policy
OBJECTIVE
OPERATION
MAXIMUM POTENTIAL
VALUE
PERFORMANCE METRICS
USED
To recognise time spent and
the responsibilities borne and
to attract high calibre
candidates who have the
necessary experience and
skills.
Directors’ fees are set by the
Board.
Annual fees are paid quarterly in
arrears.
Fees are reviewed annually and
against those for Directors in
companies of similar scale and
complexity.
Fees were last reviewed on 14
November 2023.
Directors do not receive benefits
and do not participate in any
incentive or pension plans.
Current fee levels are
shown in the remuneration
report.
Directors are not
remunerated based on
performance and are not
eligible to participate in any
performance related
arrangements.
Service Contracts and Policy on Payment of Loss of Office
The Directors’ appointments are not subject to any duration or limitation. Any Director may resign in writing at any time. Directors’
appointments are reviewed during the annual Board evaluation. No Director has a service contract with the Company. Directors have
agreed letters of appointment with the Company.
As detailed on page 37, 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 on
page 29.
GOVERNANCE |
Directors’ Remuneration Report
53 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Directors’ Remuneration Report (continued)
Dates of Directors’ Letters of Appointment
Copies of the Directors’ letters of appointment are available for inspection by shareholders at the Company’s Registered Office and will
be available at the AGM. The dates of their letter of appointments are shown below.
DATE OF LETTER OF APPOINTMENT
John Hallam 20 April 2010 (amended on 8 May 2018)
Michael Holmberg 20 April 2010 (amended on 22 August 2018)
Stephen Vakil 5 February 2016 (amended on 8 May 2018)
Christopher Legge 12 April 2018
Directors’ Interests
The Company has not set any requirements or guidelines for Directors to own shares in the Company. The beneficial interests of the
Directors and their connected persons in the Company’s shares at 31 March 2024 are shown in the table below:
DIRECTOR
NO. OF ORDINARY
SHARES
NO. OF EXTENDED
LIFE SHARES
NO. OF NEW GLOBAL
SHARES
TOTAL NO. OF
SHARES
John Hallam
-
40,507
33,462
73,969
Michael Holmberg
-
17,885
34,982
52,867
Christopher Legge
-
-
-
-
Stephen Vakil
-
-
18,253
18,253
Advisors to the Remuneration Committee
The Remuneration Committee has not sought the paid advice or professional services by any outside person in respect of its
consideration of the Directors’ remuneration. The Remuneration Committee sought input from Neuberger Berman Europe Limited
(“NBEL”) and the Brokers during its deliberations of the remuneration policy.
Stephen Vakil
On behalf of the Remuneration Committee
25 April 2024
GOVERNANCE |
Directors’ Remuneration Report
54 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the
financial statements in accordance with accounting principles generally accepted in the United States of America and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable, relevant and reliable;
state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the
financial statements;
assess the Group’s or the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern;
and
use the going concern basis of accounting unless liquidation is imminent.
The directors confirm that they have complied with the above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements
comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The directors of the Company have elected to prepare consolidated financial statements for the Company for the year ended 31 December
2023 as the parent of the Group in accordance with Section 244(5) of the Law.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors who hold office at the date of approval of this Director’s Report confirm that so far as they are aware, there is no relevant audit
information of which the Company’s auditor is unaware, and that each Director has taken all the steps they ought to have taken as a director to
make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
Responsibility statement of the directors in respect of the Annual Report
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
the Annual Report includes a fair review of the development and performance of the business and the position of the issuer, together with
a description of the principal risks and uncertainties that they face.
We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy.
John Hallam Christopher Legge
Chairman Director
25 April 2024 25 April 2024
GOVERNANCE |
Directors’ Responsibilities Statement
55 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Independent Auditor’s Report to the Members of NB Distressed Debt Investment Fund Limited
Our opinion is unmodified
We have audited the consolidated financial statements of NB Distressed Debt Investment Fund Limited (the “Company”) and its
subsidiaries (together, the "Group"), which comprise the consolidated statement of assets and liabilities including the consolidated
condensed schedule of investments as at 31 December 2023, the consolidated statements of operations, changes in net assets
and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements:
give a true and fair view of the financial position of the Group as at 31 December 2023, and of the Group’s financial
performance and cash flows for the year then ended;
are prepared in accordance with U.S. generally accepted accounting principles; and
comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company and
Group in accordance with, UK ethical requirements including the FRC Ethical Standard as required by the Crown Dependencies'
Audit Rules and Guidance. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our
opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated
financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2022):
The risk Our response
Valuation of Investments, at fair value
(“Investments”)
$60,883,590 (2022: $73,743,616)
Refer to the Audit Committee Report on
page 44, the Consolidated Condensed
Schedule of Investments on page 64,
Note 2 Summary of Accounting Policies,
and Note 2(f) Fair Value of Financial
Instruments
Basis:
The Group’s investment portfolio is
carried at fair value in accordance with
US generally accepted accounting
principles. It represents a significant
proportion (76% (2022: 78%)), and is the
principal driver, of the Group’s net asset
value.
The Group’s holdings in quoted and
unquoted equity and debt investments,
representing 49% of the fair value of
investments, are valued at their bid price
using broker quotes (including use of
single broker quotes) or third party
pricing service providers (the “Price
Quotes”).
Our audit procedures included:
Control evaluation:
We assessed and evaluated the design
and implementation of the control in place
over the valuation of investments.
Challenging managements’
assumptions and inputs including use
of KPMG valuation specialists:
For Investments where market quotes
were available, we obtained prices from
third party data sources and pricing
vendors.
GOVERNANCE |
Independent Auditor’s Report
56 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Independent Auditor’s Report to the Members of NB Distressed Debt Investment Fund Limited
(continued)
Where no Price Quotes are available or
they may not be representative of fair
value, the Group will utilise the
resources of the Investment Manager to
augment its own fair value analysis to
determine the most appropriate fair
value for such investments (the
“Internally Generated Valuations”). 51%
of the fair value of Investments were
valued using Internally Generated
Valuations.
Risk:
The valuation of the Group’s
investments is considered a significant
area of our audit, given that it represents
the majority of the net assets of the
Group.
The valuation risk for both the Internally
Generated Valuations and single broker
quoted investment valuations
incorporate both a risk of fraud and error
given the significance of estimates and
judgments that may be involved in the
determination of fair value.
For Internally Generated Valuations and
single broker quoted investments, we
performed, as applicable, the following
procedures with the support of our KPMG
valuation specialists:
We obtained and read the fair
valuation memoranda prepared by
the Investment Manager, including
their fair value analysis to
corroborate broker prices against
relevant market metrics and
valuation methods;
We assessed the appropriateness of
the valuation approach and
methodology applied to each
investment and where relevant,
derived an independent reference
price;
We compared the assumptions used
in the valuations to observable
market data or supporting
documentation;
We corroborated significant inputs
used to supporting documentation;
and
We assessed the effect of the
investee entity’s financial
performance upon the fair value.
Assessing disclosures:
We considered the Group’s disclosures
(Note 2(c)) in relation to the use of
estimates and judgements regarding the
valuation of investments and the Group's
investment valuation policies (Note 2(f))
adopted and fair value disclosures.
GOVERNANCE
|
Independent Auditor’s Report
57 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Independent Auditor’s Report to the Members of NB Distressed Debt Investment Fund Limited
(continued)
Our application of materiality and an overview of the scope of our audit
Materiality for the consolidated financial statements as a whole was set at $1,590,000, determined with reference to a benchmark
of group net assets of $80,157,738 of which it represents approximately 2.0% (2022: 2.0%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in
individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for
the Group was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to $1,190,000. We
applied this percentage in our determination of performance materiality because we did not identify any factors indicating an
elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $79,500, in addition to
other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Group was undertaken to the materiality level specified above, which has informed our identification of significant
risks of material misstatement and the associated audit procedures performed in those areas as detailed above.
The group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was
performed using the materiality level set out above and covered 100% of total Group net increase in net assets resulting from
operations and total Group assets and liabilities..
Going concern
The directors have prepared the consolidated financial statements on the going concern basis as they do not intend to liquidate
the Group or the Company or to cease their operations, and as they have concluded that the Group and the Company's financial
position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going concern for at least a year from the date of approval of theconsolidated
financial statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered the inherent risks to the Group and the Company's business model
and analysed how those risks might affect the Group and the Company's financial resources or ability to continue operations over
the going concern period. The risks that we considered most likely to affect the Group and the Company's financial resources or
ability to continue operations over this period was availability of capital to meet operating costs and other financial commitments.
We considered whether this risk could plausibly affect the liquidity in the going concern period by comparing severe, but plausible
downside scenarios that could arise from this risk against the level of available financial resources indicated by the Company’s
financial forecasts.
We considered whether the going concern disclosure in note 2(a) to the financial statements gives a full and accurate description
of the directors' assessment of going concern.
Our conclusions based on this work:
we consider that the directors' use of the going concern basis of accounting in the preparation of the consolidated financial
statements is appropriate;
we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on the the Group and the Company's ability to continue
as a going concern for the going concern period; and
we found the going concern disclosure in the notes to the consolidated financial statements to be acceptable.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that
the Group and the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessments procedures included:
GOVERNANCE
|
Independent Auditor’s Report
58 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Independent Auditor’s Report
Independent Auditor’s Report to the Members of NB Distressed Debt Investment Fund Limited
(continued)
enquiring of management as to the Group’s policies and procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged fraud;
reading of minutes of those charged with governance; and
using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, and taking into account possible incentives or pressures to misstate performance and our
overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in
particular the risk that management may be in a position to make inappropriate accounting entries, and the risk of bias in
accounting estimates such as valuation of single broker quoted investments and Internally Generated Valuations.
On this audit we do not believe there is a fraud risk related to revenue recognition because the Group’s revenue streams are
simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with
little or no requirement for estimation from management. We did not identify any additional fraud risks.
We performed procedures including:
identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to
supporting documentation;
incorporating an element of unpredictability in our audit procedures; and
assessing significant accounting estimates for bias
Further detail in respect of valuation of single broker quoted investments and Internally Generated Valuations is set out in the key
audit matter section of in this report.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the consolidated
financial statements from our general commercial and sector experience and through discussion with management (as required
by auditing standards), and from inspection of the Group’s regulatory and legal correspondence, and discussed with management
the policies and procedures regarding compliance with laws and regulations. As the Group is regulated, our assessment of risks
involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory
requirements.
The Group is subject to laws and regulations that directly affect the consolidated financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Group is subject to other laws and regulations where the consequences of non-compliance could have a material effect on
amounts or disclosures in the consolidated financial statements, for instance through the imposition of fines or litigation or impacts
on the Group and the Company’s ability to operate. We identified financial services regulation as being the area most likely to
have such an effect, recognising the regulated nature of the Group’s activities and its legal form. Auditing standards limit the
required audit procedures to identify non-compliance with these laws and regulations to enquiry of management and inspection of
regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material
misstatements in the consolidated financial statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the
events and transactions reflected in the consolidated financial statements, the less likely the inherently limited procedures
required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated
59 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
GOVERNANCE | Independent Auditor’s Report
Independent Auditor’s Report to the Members of NB Distressed Debt Investment Fund Limited
(continued)
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 on page 54, the directors are responsible for: the preparation of the consolidated
financial statements including being satisfied that they give a true and fair view; such internal control as they determine is
necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and using the going concern basis of accounting unless liquidation is imminent.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a
high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated
financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than the Company's members, as a
body
This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
25 April 2024
60 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Statement of Assets and Liabilities
Consolidated Statement of Assets and Liabilities
AS AT 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE) 31 DECEMBER 2023 31 DECEMBER 2022
Assets
Investments
,
at fair value (2023: cost of $
90,284,52
9
;
2022: cost of $103,009,846)
60,883,590
73,743,616
Forward currency contracts, at fair value 18,235 12,018
Total Return Swaps
,
at fail value
(2023: cost
of $Nil
, 2022: cost of $Nil)
3,648,201
1,558,420
Cash and cash equivalents 4,809,578 8,733,589
Restricted Cash:
Forward currency contracts Collateral 790,000 90,000
Total return swap Collateral 10,970,000 10,970,000
81,119,604
95,107,643
Other assets
Interest receivables
691,898
596,024
Withholding tax receivable 251,051 445,762
Other receivables and prepayments
57,691
72,304
Receivables for investments sold
-
498,514
Total assets 82,120,244 96,720,247
Liabilities
Forward currency contracts
,
at fair value
1,545,570
1,269,365
Accrued expenses and other liabilities 395,627 282,649
Credit default swap
, at fair value
(2023: cost of $
19,860;
2022: cost of $16,821)
21
,
309
21,494
Total liabilities 1,962,506 1,573,508
Net assets
80,1
57
,
738
95,146,739
Net assets attributable to Ordinary Shares (shares 2023: 15,382,770;
2022:
15,382,770)
12,4
15
,
231
11,890,321
Net asset value per Ordinary Share 0.8071 0.7730
Net assets attributable to Extended Life Shares (shares 2023: 44,234,790;
2022: 60,116,016) 45,614,485 58,477,990
Net asset value per Extended Life Share 1.0312 0.9728
Net assets attributable to New Global Shares (shares 2023: 27,821,698;
2022: 31,023,609) £17,358,035 £20,598,909
Net asset value per New Global Share
£0.6239
£0.6640
Net assets attributable to New Global Shares (USD equivalent)
22,128,022
24,778,428
Net asset value per New Global Share (USD equivalent)
0.7954
0.7987
The Financial Statements were approved and authorised for issue by the Board of Directors on 25 April 2024 and signed on its behalf by:
John Hallam Christopher Legge
Chairman Director
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
61 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FOR THE YEAR ENDED 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS) 31 DECEMBER 2023 31 DECEMBER 2022
Income
Interest income
2,899,273
8,496,913
2,899,273 8,496,913
Expenses
Professional and other expenses
531,88
6
462,603
Audit Fee 316,352 276,891
Directors’ fees and expenses
193,450
188,088
Company Secretary Fee 116,888 109,316
D&O Insurance Fee
105,471
116,889
Administration fee
87,547
97,879
Loan administration and custody fees 30,743 24,726
1,382,337
1,276,392
Net investment income
1,516,936
7,220,521
Realised and unrealised (loss)/gain from investments and foreign exchange
Net realised (loss)/gain on investments, credit default swap, total return swap and forward
currency transactions
(92,697)
1,585,726
Net change in unrealised gain on investments, credit default swap, total return swap and
forward currency transactions 1,542,286 1,419,108
Realised and unrealised gain from investments and foreign exchange 1,449,589 3,004,834
Net increase in net assets resulting from operations 2,966,525 10,225,355
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Operations
Co
nsolidated Statement of
Operations
62 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Consolidated Statement of Changes in Net Assets
FOR THE YEAR ENDED 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
31 DECEMBER 2023
ORDINARY SHARES
31 DECEMBER 2023
EXTENDED LIFE SHARES
31 DECEMBER 2023
NEW GLOBAL SHARES
31 DECEMBER 2023
AGGREGATED
Net assets at the beginning of the year
11,890,321
58,477,990
24,778,428
95,146,739
Net investment
income
21,599
711,561
783,776
1,516,936
Net realised (loss)/gain on investments, credit default swap
and forward currency transactions
(229,535)
726,939
(590,101)
(92,697)
Net change in unrealised gain/(loss) on investments, credit
default swap and forward currency transactions 732,846 955,658 (146,218) 1,542,286
Shares redeemed during the year
-
(15,257,663)
(2,697,863)
(17,955,526)
Net assets at the end of the year
12,4
15
,
231
45,
614
,
485
22,128,022
80,1
57
,
738
FOR THE YEAR ENDED 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
31 DECEMBER 2022
ORDINARY SHARES
31 DECEMBER 2022
EXTENDED LIFE SHARES
31 DECEMBER 2022
NEW GLOBAL SHARES
31 DECEMBER 2022
AGGREGATED
Net assets at the beginning of the
year
13,887,833
74,450,993
32,215,319
120,554,145
Ne
t in
vestme
nt
income
22,330
4,750,004
2,448,187
7,220,521
Net realised loss on investments, credit default swap and
forward currency transactions
(117,445)
2,424,254
(721,083)
1,585,726
Net change in unrealised (loss)/gain on investments, credit
default swap and
forward currency transactions
(1,902,397)
1,620,364
1,701,141
1,419,108
Dividends - (5,799,245) (2,828,797) (8,628,042)
Shares redeemed during the year
-
(18,968,380)
(8,036,339)
(27,004,719)
Net assets at the end of the year 11,890,321 58,477,990 24,778,428 95,146,739
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
F
INANCIAL STATEMENTS |
C
onsolidated Statement of Changes in Net Assets
63 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
31 DECEMBER 2023
31 DECEMBER 2022
Cash flows from operating activities:
Net increase in net
assets resulting from operations
2,9
66
,
525
10,225,355
Adjustment to reconcile net increase/(decrease) in net assets resulting from operations to net
cash flow provided by operations:
Net realised loss/(gain) on investments, credit default swap, total return swap and forward
currency transactions
92,697
(1,585,726)
Net change in unrealised gain on investments, credit default swap, total return swap and forward
currency transactions
(1,
542
,
286
)
(1,419,108)
Accretion of discount on loans and bonds
91,550 145,689
Changes in interest receivable
(95,874)
75,835
Changes in receivables for investments sold
498,514
(157,540)
Changes in other receivables and prepayments
14,613 3,514
Changes in withholding tax receivable
194,711
-
Changes in accrued expenses and other liabilities 112,978 36,040
Cash received on settled forward currency contracts and spot currency contracts
(1,975,089)
1,962,633
Payment in kind interest (1,965,980) (2,736,347)
Purchase of investments
2
(317,725) (205,537)
Sale of investments
2
16,634,461
32,240,146
Sale of short term investments
1
- 1,606,375
Net cash provided by operating activities 14,709,095 40,191,329
Cash flows from financing activities:
Shares redeemed during the
year
(17,955,526)
(27,004,719)
Dividend paid - (8,628,042)
Net cash used in
from financing activities
(17,955,526)
(35,632,761)
Net
(decrease)/
increase in cash, cash equivalents and restricted cash
(3,246,431)
4,558,568
Cash and cash equivalents at the beginning of the year 8,733,589 4,370,854
Restricted cash at the beginning of the year
11,060,000
10,970,000
Effect of exchange rate changes on cash and cash equivalents 22,420 (105,833)
Cash and cash equivalents at the end of the year 4,809,578 8,733,589
Restricted cash at the end of the year
11,760,000
11,060,000
Supplemental cash flow information
There
were no reorg
anisations requiring disclosure in the
year to
31 December 2023
(31 December 202
2
: None)
.
1
Short term investments are typically sold or converted to cash within 3 to 12 months.
2
Included in these figures is $Nil (2022: $2,678) of non-cash transactions. These arose due to the repricing and restructuring of certain investments during the year.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
64 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by financial instrument)
AS AT 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
COST
FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED
LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Portfolio of Distressed Investments
Bank Debt Investments
45,428,216
27,125,693
-
20.
66
79.99
33.8
3
Private Equity
17,788,091
23,948,613
24.4
0
37.6
2
17.00
29.
88
Private Note
19,741,373
3,724,142
2.22
7.5
6
-
4.65
Short term
Investments
US Treasury Bills 7,326,847 6,085,142 33.20 4.30 - 7.59
Total Investments 90,284,527 60,883,590 59.82 70.14 96.99 75.95
Portfolio per share class
Ordinary Shares
6,993,271
7,426,240
59.8
2
-
-
9
.2
6
Extended Life Shares
48,959,822
31,996,330
-
70.
14
-
39.9
2
New Global Shares
34,331,434
21,461,020
-
-
96.99
26.7
7
90,284,52
7
60,883,590
59.8
2
70
.14
96.99
7
5
.
95
Credit Default Swap
Ordinary Shares
(5,567)
(
5
,
973
)
(0.
05
)
-
-
(0.0
1
)
Extended Life Shares
(14,293)
(
15
,
336
)
-
(0.
03
)
-
(0.0
1
)
(19,860)
(
21
,
309
)
(0.
05
)
(0.
03
)
-
(0.0
2
)
Forward Currency Contracts
Assets
Ordinary Shares
-
3,808
0.03
-
-
-
Extended Life Shares
-
14,427
-
0.03
-
0.02
-
18,235
0.03
0.03
-
0.02
Liabilities
Ordinary Shares - (348,550) (2.81) - - (0.44)
Extended Life Shares - (1,197,020) - (2.63) - (1.49)
-
(1,545,570)
(2.81)
(2.63)
-
(1.93)
Total Return Swap
2
Ordinary Shares
-
1,018,720
8.21
-
-
1.27
Extended Life Shares
-
2,629,481
-
5.76
-
3.28
-
3,648,201
8.21
5.76
-
4.55
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
2
The trade claim was structured through a fully funded total return swap with a major US financial institution. See Note 3.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
65 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by financial instrument) (continued)
AS AT 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
COST
FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Portfolio of Distressed Investments
Bank Debt Investments
45,738,879
27,358,457
-
18.82
65.99
28.75
Private Equity
17,788,092
24,502,057
21.86
28.64
20.81
25.76
Private Note
32,100,083
15,923,291
5.21
21.86
10.17
16.74
Short term Investments
US Treasury Bills 7,382,792 5,959,811 33.95 3.29 - 6.26
Total Investments
103,009,846
73,743,616
61.02
72.61
96.97
77.51
Portfolio per share class
Ordinary Shares
7,085,668
7,255,206
61.02
-
-
7.63
Extended Life Shares
59,089,019
42,461,578
-
72.61
-
44.63
New Global Shares
36,835,159
24,026,832
-
-
96.97
25.25
103,009,846
73,743,616
61.02
72.61
96.97
77.51
Credit Default Swap
Ordinary Shares
(4,715)
(6,025)
(0.05)
-
-
(0.01)
Extended Life Shares
(12,106)
(15,469)
-
(0.03)
-
(0.02)
(16,821)
(21,494)
(0.05)
(0.03)
-
(0.03)
Forward Currency Contracts
Assets
Ordinary Shares - 3,953 0.03 - - -
Extended Life Shares - 8,065 - 0.01 - 0.01
- 12,018 0.03 0.01 - 0.01
Liabilities
Ordinary Shares - (231,261) (1.94) - - (0.24)
Extended Life Shares
-
(1,038,104)
-
(1.78)
-
(1.09)
-
(1,269,365)
(1.94)
(1.78)
-
(1.33)
Total Return Swap
2
Ordinary Shares
-
435,022
3.66
-
-
0.46
Extended Life Shares
-
1,123,398
-
1.91
-
1.18
-
1,558,420
3.66
1.91
-
1.64
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
2
The trade claim was structured through a fully funded total return swap with a major US financial institution. See Note 3.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
66 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments
Investments with the following issuers comprised greater than 5% of Total Company NAV
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
2
Floating Rate Note (FRN) – variable coupon rate during the year as per contract notice.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
AS AT 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS) COUNTRY INDUSTRY NOMINAL
COST FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED
LIFE
SHARES
(%)
1
NEW
GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Investments at fair value
White Energy Holding Company
LLC
(Private Equity)
United
States
Oil & Gas
367
9,174,989
11,010,000
-
17.2
3
14.24
13.74
AB Zwolle T/L EUR 01/06/2020
(Bank Debt Investments) Netherlands
Commercial
Mortgage 20,223,504 14,595,720 10,879,528 - 10.57 27.37 13.57
Package Holdings 1 (Private Note) Luxembourg
Containers and
Packaging 11,108,610 - 9,473,309 21.32 14.96 - 11.82
Package Holdings 6 (Private Note)
Luxembourg
Containers and
Packaging
2,948,481
1,893,980
1,313,564
2.97
6.38
-
1.64
TP Ferro Concesionaria T/L 1L
31/03/2016
(Bank Debt Investments)
Spain
Surface
Transport
18,787,735
18,531,522
4,150,774
-
4.57
9.35
5.18
TP Ferro Concesionaria TP Ferro
T/L-A (First-Lien)
(Bank Debt Investments) Spain
Surface
Transport 2,945,545 2,945,545 2,945,545 - 3.23 6.66 3.67
TP Ferro Concesionaria TP Ferro
1L T/L-B EUR (First-Lien) EUR
(Bank Debt Investments) Spain
Surface
Transport 593,063 666,784 655,127 - 0.72 1.48 0.82
TP Ferro PIK 5A 4/20
(Bank Debt Investments)
Spain
Surface
Transport
522,319
522,319
522,319
-
0.57
1.18
0.65
TP Ferro PIK 5C 7/23 (Bank Debt
Investments)
Spain
Surface
Transport
361,262
361,262
361,262
1.00
0.40
0.82
0.45
TP Ferro PIK 5B 7/22
(Bank Debt Investments) Spain
Surface
Transport 298,046 298,046 298,046 - 0.33 0.67 0.37
TP Ferro Concesionaria TP Ferro
1L T/L-C (First-Lien)
(Bank Debt Investments) Spain
Surface
Transport 256,553 256,553 256,553 - 0.28 0.58 0.32
Hotel Puerta America PIK T/L EUR
(Bank Debt Investments) Spain
Lodging &
Casinos 3,901,657 4,293,218 4,215,146 - - 19.05 5.26
Hotel Puerta America PIK Addon
EUR (Bank Debt Investments)
Spain
Lodging &
Casinos
1,540,070
1,675,349
1,663,811
-
-
7.52
2.08
Hotel Puerta America PIK PPL
EUR
(Bank Debt Investments)
Spain
Lodging &
Casinos
1,090,003
1,281,898
1,177,582
-
-
5.32
1.47
US Treasury N/B 1.500% 02/15/30
(US Treasury Bills)
United
States1
United States
6,975,000
7,326,847
6,085,143
33.2
0
4.3
0
-
7.
59
63,824,032 55,007,709 58.49 63.54 94.24 68.63
67 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (continued)
Investments with the following issuers comprised greater than 5% of Total Company NAV
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
2
Floating Rate Note (FRN) – variable coupon rate during the year as per contract notice.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
COUNTRY
INDUSTRY
NOMINAL
COST
FAIR
VALUE
ORDINARY
SHARES
(%)
1
EXTENDED
LIFE
SHARES
(%)
1
NEW
GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Investments at fair value
White Energy Holding Company
LLC
(Private Equity) United States Oil & Gas 367
9,174,989 11,010,000 -
13.44 12.71 11.57
AB Zwolle T/L EUR 05/31/2023
(Bank Debt Investments) Netherlands
Commercial
Mortgage 19,200,256
14,043,835 10,671,960 -
8.09 23.98 11.22
Package Holdings 1 (Private Note) Luxembourg
Containers and
Packaging 11,108,610
-
8,103,345
19.04 9.99 - 8.52
Package Holdings 6 (Private Note)
Luxembourg
Containers and
Packaging
2,948,481
1,893,980
1,123,710
2.64
1.38
-
1.18
TP Ferro Concesionaria T/L 1L
31/03/2016
(Bank Debt Investments) Spain
Surface
Transport 18,787,735
18,531,522
4,010,242
- 3.44 8.06 4.21
TP Ferro Concesionaria TP Ferro
T/L-A (First-Lien)
(Bank Debt Investments)
Spain
Surface
Transport
2,309,778
2,309,778
2,309,778
-
1.97
4.66
2.43
TP Ferro PIK 5B 7/22
(Bank Debt Investments) Spain
Surface
Transport 234,516
234,516
234,516
- 0.20 0.47 0.25
TP Ferro Concesionaria TP Ferro
1L T/L-B EUR (First-Lien) EUR
(Bank Debt Investments)
Spain
Surface
Transport
465,056
527,661
496,331
-
0.42
1.00
0.52
TP Ferro PIK 5A 4/20
(Bank Debt Investments)
Spain
Surface
Transport
409,581
409,581
409,581
-
0.35
0.83
0.43
TP Ferro Concesionaria TP Ferro
1L T/L-C (First-Lien)
(Bank Debt Investments) Spain
Surface
Transport 201,179
201,179
201,179
- 0.17 0.41 0.21
ACA Fin Guaranty Corp 12-
12/31/2025 Frn
(Private Note)
United
States
Financial
Intermediaries 66,659,722
10,617,941
4,332,882
5.21 6.35 - 4.55
ACA Fin Gur Sur Non Vt 12-
12/31/2025 Frn
(Private Note)
United
States
Financial
Intermediaries
61,989,978
9,840,909
4,029,349
-
6.89
-
4.23
Hotel Puerta America PIK T/L
EUR
(Bank Debt Investments) Spain
Lodging &
Casinos 3,643,760
4,017,977
3,888,803
- - 15.69 4.09
Hotel Puerta America
(Private Equity)
Spain
Lodging &
Casinos
934
3,013,332
1,110,956
-
-
4.48
1.18
Hotel Puerta America PIK PPL
EUR
(Bank Debt Investments) Spain
Lodging &
Casinos 1,090,003
1,281,898
1,163,306
- - 4.69 1.22
Hotel Puerta America PIK Addon
EUR
(Bank Debt Investments)
Spain
Lodging &
Casinos
1,438,272
1,566,706
1,534,996
-
-
6.19
1.61
Buffalo Thunder Dev Auth 11.00%
12/09/29 SR: Regs
(Private Note)
United
States
Lodging &
Casinos
14,001,965
11,641,233
7,561,061
-
8.62
10.17
7.95
US Treasury N/B 1.500%
02/15/30
(US Treasury Bills)
United
States United States 6,975,000
7,382,792
5,959,811
33.95 3.29 - 6.26
96,689,829
68,151,806
60.84
64.60
93.34
71.63
68 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Consolidated Condensed Schedule of Investments (by geography)
A
S AT 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
COST
FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Geographic diversity of Portfolio
s
Portfolio of Distressed Investments
Luxembourg
1,893,980 10,786,873 24.28 17.04 - 13.46
Netherlands
14,595,720 10,879,528 - 10.57 27.37 13.57
Spain
33,845,829 16,246,165 - 10.09 52.62 20.27
United States
32,622,15
3
16,885,882
2.34
28.1
4
17.00
21.0
6
Short term Investments
(US Treasury Bills)
United States
7,326,847 6,085,142 33.20 4.30 - 7.59
90,284,529 60,883,590 59.82 70.14 96.99 75.95
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
FINANCIAL STATEMENTS |
C
onsolidated Condensed Schedule of Investments
69 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Consolidated Condensed Schedule of Investments (by geography) (continued)
AS
AT 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
COST FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Geographic diversity of Portfolio
s
Portfolio of Distressed Investments
Luxembourg
1,893,980 9,227,056 21.69 11.37 - 9.70
Netherlands
14,043,835
10,671,960
-
8.09
23.98
11.22
Spain
32,094,148
15,359,687
-
6.56
46.50
16.14
United States
47,595,091
32,525,102
5.38
43.30
26.49
34.19
Short term Investments
(US Treasury Bills)
United States
7,382,792 5,959,811 33.95 3.29 - 6.26
103,009,846
73,743,616
61.02
72.61
96.97
77.51
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
FINANCIAL STATEMENTS |
C
onsolidated Condensed Schedule of Investments
70 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Consolidated Condensed Schedule of Investments (by sector)
AS AT 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
COST
FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Industry diversity of Portfolios
Portfolio of Distressed Investments
Auto Components
3,705,793
2,151,740
0.11
3.35
2.76
2.6
8
Commercial Mortgage 14,595,720 10,879,528 - 10.57 27.37 13.57
Containers and Packaging
1,893,980
10,786,87
3
24.
28
17.0
4
-
13.4
6
Financial Intermediaries 19,741,371 3,724,142 2.23 7.56 - 4.65
Lodging & Casinos
10,263,797
7,056,5
40
-
-
31.89
8.80
Oil & Gas 9,174,989 11,010,000 - 17.23 14.24 13.74
Surface Transport
23,582,03
2
9,189,625
-
10.09
20.73
11.4
6
Short term
Investments
US Treasury Bills 7,326,847 6,085,142 33.20 4.30 - 7.59
90,284,52
9
60,883,590
59.8
2
70.
14
96.99
7
5
.
95
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements..
FINANCIAL STATEMENTS |
C
onsolidated Condensed Schedule of Investments
71 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Consolidated Condensed Schedule of Investments (by sector) (continued)
AS AT 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
COST
FAIR VALUE
ORDINARY
SHARES
(%)
1
EXTENDED LIFE
SHARES
(%)
1
NEW GLOBAL
SHARES
(%)
1
TOTAL
COMPANY
(%)
1
Industry diversity of Portfolios
Portfolio of Distressed Investments
Auto Components
3,705,793
3,154,044
0.17
3.83
3.61
3.31
Commercial Mortgage 14,043,835 10,671,960 - 8.09 23.98 11.22
Containers and Packaging
1,893,980
9,227,056
21.69
11.37
-
9.70
Financial Intermediaries
20,458,849
8,362,230
5.21
13.24
-
8.79
Lodging & Casinos 24,135,372 17,696,890 - 12.79 41.24 18.60
Oil & Gas 9,174,989 11,010,000 - 13.44 12.71 11.58
Surface Transport
22,214,236
7,661,625
-
6.56
15.43
8.05
Short term Investments
US Treasury Bills
7,382,792
5,959,811
33.95
3.29
-
6.26
103,009,846 73,743,616 61.02 72.61 96.97 77.51
1
This is the Fair Value expressed as a percentage of total Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes on pages 72 to 90 are an integral part of the Consolidated Financial Statements.
FINANCIAL STATEMENTS |
C
onsolidated Condensed Schedule of Investments
72 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 1 – ORGANISATION AND DESCRIPTION OF BUSINESS
NB Distressed Debt Investment Fund Limited (the “Company”) is a closed-ended investment company registered and incorporated in
Guernsey under the provisions of the Companies (Guernsey) Law, 2008 (as amended) (the “Companies Law”) with registration number 51774.
The Company’s shares are traded on the Specialist Fund Segment (“SFS”) of the London Stock Exchange (“LSE”). All share classes are in the
harvest period.
The Company’s objective is to provide investors with attractive risk-adjusted returns through long-biased, opportunistic stressed, distressed
and special situation credit-related investments while seeking to limit downside risk by, amongst other things, focusing on senior and senior
secured debt with both collateral and structural protection.
The Company’s share capital is denominated in US Dollars for Ordinary Shares and Extended Life Shares and Pounds Sterling for New Global
Shares.
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES
(a) Basis of Preparation
The accompanying Consolidated Financial Statements (“Financial Statements”) give a true and fair view of the assets, liabilities, financial
position and return and have been prepared in conformity with U.S. generally accepted principles (“US GAAP”) and Companies Law and are
expressed in US Dollars. All adjustments considered necessary for the fair presentation of the financial statements, for the year presented,
have been included.
The Company is regarded as an Investment Company and follows the accounting and reporting guidance in Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) and Financial Services — Investment Companies Topic 946: Amendments to the
Scope, Measurement, and Disclosure Requirements. (Topic 946). Accordingly, the Company reflects its investments on the Consolidated
Statement of Assets and Liabilities at their estimated fair values, with unrealised gains and losses resulting from changes in fair value reflected
in net change in unrealised gain/(loss) on investments, credit default swap, total return swap and forward currency transactions in the
Consolidated Statement of Operations.
The Board recognises that the Portfolios (the Ordinary Share Class; the Extended Life Share Class; and the New Global Share Class) are now
in their harvest periods. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational
existence for the twelve months from the date these accounts are signed and the foreseeable future. Thus, they continue to prepare the
Financial Statements on a going concern basis, as liquidation is not imminent.
(b) Principles of Consolidation
The Financial Statements include the results of the Company and its wholly-owned subsidiaries, whose accounting policies are consistent with
those of the Company. The Financial Statements include full consolidation of any owned subsidiaries, except where the effect on the
Company’s financial position and results of operations are immaterial. Transactions between the Company and the subsidiaries have been
eliminated on consolidation.
Wholly-owned subsidiaries, London Lux Masterco 1 S.a.r.l., London Lux Debtco 1 S.a.r.l. and London Lux Propco 1 S.a.r.l. are incorporated in
Luxembourg.
(c) Use of Estimates
The preparation of these Financial Statements in conformity with US GAAP requires that the Directors make estimates and assumptions (as
mentioned in detail in note 2 (f) below) that affect the reported amounts of assets and liabilities at the date of the financial statements and
reported amounts of income and expenses during the reporting year.
Actual results could differ significantly from these estimates.
(d) Cash and Cash Equivalents and Restricted Cash
The Company holds cash and cash equivalents in US Dollar and non-US Dollar denominated currencies with original maturities of less than 90
days that are both readily convertible to known amounts of cash. As at 31 December 2023, the Company has cash balances in various
currencies equating to $16,569,578 (Cost: $16,566,075) (31 December 2022: $19,793,589 (Cost: $19,641,661) including cash and cash
equivalents of $4,809,578 (31 December 2022: $8,733,589) as well as restricted cash of $11,760,000 (31 December 2022: $11,060,000).
Restricted cash of $10,970,000 (31 December 2022: $10,970,000) is collateral for the total return swap positions and restricted cash of
$790,000 (31 December 2022: $90,000) is collateral for forward currency contracts.
(e) Payables/Receivables on Investments Purchased/Sold
At 31 December 2023, the amount receivable on investments purchased/sold represents amounts due for investments purchased/sold that
have been contracted for but not settled on the Consolidated Statement of Assets and Liabilities date.
73 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(f) Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated into US Dollars at the currency exchange rates on the date of valuation.
On initial recognition, foreign currency sales and purchases transactions are recorded and translated at the spot exchange rate at the
transaction date and for all other transactions, the average rate is applied. Non-monetary assets and liabilities are translated at the historic
exchange rate.
The Company does not separate the changes relating to currency exchange rates from those relating to changes in fair value of the
investments. These fluctuations are included in the net realised gain and net change in unrealised gain/(loss) on investments, credit default
swap, total return swap and forward currency transactions in the Consolidated Statements of Operations.
(f) Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities that qualify as financial instruments under FASB ASC 825, Financial Instruments,
approximate the carrying amounts presented in the Consolidated Statement of Assets and Liabilities.
Fair value prices are estimates made at a discrete point in time, based on relevant market data, information about the financial instruments,
and other factors.
The Company follows guidance in ASC 820, Fair Value Measurement (“ASC 820”), where fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value is determined using available market information and appropriate valuation methodologies. Estimates of fair value of financial
instruments without quoted market prices are subjective in nature and involve various assumptions and estimates that are matters of
judgement. Accordingly, fair values are not necessarily indicative of the amounts that will be ultimately realised on disposal of financial
instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value
amounts.
The following estimates and assumptions were used as at 31 December 2023 and 31 December 2022 to estimate the fair value of each class
of financial instruments:
Cash and cash equivalents - The carrying value reasonably approximates fair value due to the short-term nature of these instruments.
Quoted investments are valued according to their bid price at the close of the relevant reporting date. Investments in private securities are
priced at the bid price using a pricing service for private loans. If a price cannot be ascertained from the above sources, the Company will
seek bid prices from third party broker/dealer quotes for the investments.
In cases where no third-party price is available, or where the Investment Manager determines that the provided price is not an accurate
representation of the fair value of the investment (e.g. level 3 investments included overleaf), the Investment Manager determines the
valuation based on its fair valuation policy. Further information on valuations is provided in Note 2 (g), “Investment transactions,
investment income/expenses and valuation”, on page 77.
Forward currency contracts are revalued using the forward exchange rate prevailing at the Consolidated Statement of Assets and
Liabilities date.
Total Return Swaps are priced using Mark to market prices provided by a third party broker.
Credit Return Swaps are priced using a pricing service provided by Markit Partners.
Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximises the use of observable
market data and minimises the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk,
such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the
inputs for the valuation technique. Inputs may be observable or unobservable.
Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from
sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market
participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or
liabilities may not be an indication of the risks associated with investing in those assets or liabilities.
74 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(f) Fair Value of Financial Instruments (continued)
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices are available in active markets for identical investments as of the reporting date.
Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date,
and fair value is determined through the use of models or other valuation methodologies.
Level 3: Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the
investment. The inputs used in the determination of the fair value require significant management judgement or estimation.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the
lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the
fair value measurement in its entirety requires judgement and considers factors specific to each investment.
The following is a summary of the levels within the fair value hierarchy in which the Company invests:
FAIR VALUE OF FINANCIAL INSTRUMENTS AS AT 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments
-
-
27,125,693
27,125,693
Private Equity - - 23,948,613 23,948,613
Private Note
-
-
3,724,142
3,724,142
US Treasury Bills 6,085,142 - - 6,085,142
Investments at fair value
6,085,142
-
54,798,448
60,883,590
Credit Default Swap - (21,309) - (21,309)
Total Return Swap - - 3,648,201 3,648,201
Forward Currency Contracts
-
Assets
-
18,235
-
18,235
Forward Currency Contracts - Liabilities (1,545,570) (1,545,570)
Total investments that are accounted for at fair value
6,085,142
(1,548,644)
58,446,649
62,9
83
,
147
FAIR VALUE OF FINANCIAL INSTRUMENTS AS AT 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Bank Debt Investments
-
-
27,358,457
27,358,457
Private Equity - 11,010,000 13,492,057 24,502,057
Private Note
-
7,561,061
8,362,230
15,923,291
US Treasury Bills 5,959,811 - - 5,959,811
Investments at fair value
5,959,811
18,571,061
49,212,744
73,743,616
Credit Default Swap
-
(21,494)
-
(21,494)
Total Return Swap
-
-
1,558,420
1,558,420
Forward Currency Contracts - Assets - 12,018 - 12,018
Forward Currency Contracts
-
Liabilities
-
(1,269,365)
-
(1,269,365)
Total investments that are accounted for at fair value
5,959,811
17,292,220
50,771,164
74,023,195
75 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to Consolidated Financial Statements
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(f) Fair Value of Financial Instruments (continued)
The following table summarises the significant unobservable inputs the Company used to value its investments categorised within Level 3
as at 31 December 2023. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to
our determination of fair values.
TYPE
SECTOR
FAIR VALUE ($)
PRIMARY VALUATION
TECHNIQUE
SIGNIFICANT
UNOBSERVABLE INPUTS
RANGE INPUT
Bank Debt Investments Commercial Mortgage 10,879,528 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 7,056,540 Market Comparatives Discount Rate 15%
Bank Debt Investments
Surface Transport
9,189,625
Market Information
Unadjusted Broker Quote
N/A
Private Equity
Auto Components
2,151,740
Market Information
EBITDA Multiple
4
.5
X
Private Equity Containers and Packaging 10,786,873 Market Comparatives EBITDA Multiple 10.75X
Private Equity
Oil and Gas
11
,
010
,000
Market Information
Unadjusted Broker Quote
N/A
Private Note
Financial Intermediaries
3,724,142
Market Information
Unadjusted Broker Quote
N/A
Total Return Swap Surface Transport 3,648,201 Market Information Unadjusted Broker Quote N/A
Total
5
8
,
446
,649
The following table summarises the significant unobservable inputs the Company used to value its investments categorised within Level 3 as
at 31 December 2022. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to our
determination of fair values.
TYPE
SECTOR
FAIR VALUE ($)
PRIMARY VALUATION
TECHNIQUE
SIGNIFICANT
UNOBSERVABLE INPUTS
RANGE INPUT
Bank Debt Investments Commercial Mortgage 10,671,960 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 6,587,107 Market Comparatives Discount Rate 15%
Bank Debt Investments
Lodging & Casinos
2,437,766
Market Information
Unadjusted Broker Quote
N/A
Bank Debt Investments
Surface Transport
7,661,62
5
Market Information
Unadjusted Broker Quote
N/A
Private Equity Auto Components 3,154,044 Market Information EBITDA Multiple 4.5X
Private Equity
Containers and Packaging
9,227,05
6
Market Comparatives
EBITDA Multiple
11X
Private Equity Lodging & Casinos 1,110,956 Market Comparatives Discount Rate 15%
Private Note Financial Intermediaries 8,362,230 Market Comparatives Discount Rate 25%
Total Return Swap
Surface Transport
1,558,420
Market Information
Unadjusted Broker Quote
N/A
Total 50,771,164
Changes in any of the above inputs may positively or adversely impact the fair value of the relevant investments.
Level 3 assets are valued using single bid-side broker quotes or by good faith methods of the Investment Manager. For single broker quotes
the Investment Manager uses unobservable inputs to assess the reasonableness of the broker quote. For good faith valuations, the
Investment Manager directly uses unobservable inputs to produce valuations. The significant unobservable inputs used in Level 3 assets as at
31 December 2023 and 31 December 2022 are outlined in the tables above.
These inputs vary by asset class. For example, real estate asset valuations may utilise discounted cash flow models using an average value
per square foot and appropriate discount rate. Other assets may be valued based on analysis of the liquidation of the underlying assets. In
general, increases/(decreases) to per unit valuation inputs such as value per square foot, will result in increases/(decreases) to investment
value.
Similarly, increases/(decreases) of asset realisation inputs (liquidation estimate, letter of intent, etc.) will also result in increases/(decreases) in
value. In situations where discounted cash flow models are used, increasing/(decreasing) discount rates or increasing/(decreasing) weighted
average life, in isolation, will generally result in (decreased)/increased valuations.
76 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(f) Fair Value of Financial Instruments (continued)
The following is a reconciliation of opening and closing balances of assets and liabilities measured at fair value on a recurring basis using Level
3 inputs:
F
OR THE
YEAR
ENDED
31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
BANK DEBT
INVESTMENTS PRIVATE EQUITY
TRADE CLAIM PRIVATE NOTE TOTAL
Balance, 31 December 2022 27,358,457 13,492,057 1,558,420 8,362,230 50,771,164
Purchases (includes purchases-in-kind) 2,303,563 - - - 2,303,563
Sales and distributions (2,508,112) - - (4,511,654) (7,019,766)
Realised gain on sale of investments (70,506) - - 3,794,178 3,723,672
Unrealised gain/(loss) on investments 42,291 (553,444) 2,089,781 (3,920,612) (2,341,984)
Transfers from Level 2 into Level 3 - 11,010,000 - - 11,010,000
Balance, 31 December 2023 27,125,693 23,948,613 3,648,201 3,724,142 58,446,649
Change in unrealised gain/(loss) on investments included
in Audited Consolidated Statement of Operation for Level 3
investments held as at 31 December 2023 (98,561) (553,444) 2,089,781 (3,920,612) (2,482,836)
The Company's policy is to recognise transfers into and out of Level 3 as of the actual date of the event or change in circumstances that caused
the transfer. During the year the Company had no transfers out of Level 3 into Level 2 of fair value amounting to $Nil. The Company had one
transfer out of Level 2 into Level 3 of fair value amounting to $11,010,000 as only a single broker quote was observable.
The following is a reconciliation of opening and closing balances of assets and liabilities measured at fair value on a recurring basis using Level
3 inputs:
F
OR THE YEAR ENDED 31 DECEMBER 202
2
(EXPRESSED IN US DOLLARS)
BANK DEBT
INVESTMENTS PRIVATE EQUITY TRADE CLAIM PRIVATE NOTE TOTAL
Balance, 31 December 2021 47,181,981 21,836,374 (875,121) 6,641,858 74,785,092
Purchases (includes purchases-in-kind) 4,240,602 -
-
-
4,240,602
Sales and distributions (28,047,566) -
-
(4,187,464) (32,235,030)
Realised (loss)/gain on sale of investments (2,239,259) (1,003,803) -
3,521,541 278,479
Unrealised gain/(loss) on investments 3,766,473 (7,340,514) 2,433,541 2,386,295 1,245,795
Transfers from Level 2 into Level 3 2,456,226 - - - 2,456,226
Balance, 31 December 2022 27,358,457 13,492,057 1,558,420 8,362,230 50,771,164
Change in unrealised (loss)/gain on investments included
in Audited Consolidated Statement of Operation for Level 3
investments held as at 31 December 2022 (867,184) (8,344,317) 2,433,541 2,386,295 (4,391,665)
The Company's policy is to recognise transfers into and out of Level 3 as of the actual date of the event or change in circumstances that caused
the transfer. During the year the Company had no transfers out of Level 3 into Level 2 of fair value amounting to $Nil. The Company had one
transfer out of Level 2 into Level 3 of fair value amounting to $2,456,226 on 28 December 2022, due to a lack of observable inputs into the
valuation.
77 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(g) Investment transactions, investment income/expenses and valuation
Investment transactions are accounted for on a trade-date basis. Upon sale or maturity, the difference between the consideration received
and the cost of the investment is recognised as a realised gain or loss under Net realised gain on investments, credit default swap,
warrants and forward currency transactions in the Consolidated Statement of Operations. The cost is determined based on the average
cost method. All transactions relating to the restructuring of current investments are recorded at the date of such restructuring. The
difference between the fair value of the new consideration received and the cost of the original investment is recognised as a realised gain
or loss. Unrealised gains and losses on an investment are the difference between the cost if purchased during the year or fair value at the
previous year end and the fair value at the current year end. Unrealised gains and losses are included under Net change in unrealised
(loss)/gain on investments, credit default swap, warrants and forward currency transactions in the Consolidated Statement of Operations.
For the year ended 31 December 2023, $91,550 (31 December 2022: $145,689) was recorded to reflect accretion of discount on loans
and bonds during the year and is included as Interest Income in the Consolidated Statement of Operations.
Interest earned on debt instruments is accounted for, net of applicable withholding taxes and it is recognised as income over the terms of
the loans and bonds. Discounts received or premiums paid in connection with the acquisition of loans and bonds are amortised into
interest income using the effective daily interest method over the contractual life of the related loan and bond. If a loan is repaid prior to
maturity, the recognition of the fees and costs is accelerated as appropriate. The Company raises a provision when the collection of
interest is deemed doubtful. Dividend income is recognised on the ex-dividend date net of withholding tax.
Payment-in-kind (“PIK”) interest is computed at the contractual rate specified in the loan agreement for any portion of the interest which
may be added to the principal balance of a loan rather than paid in cash by the obligator on the scheduled interest payment date. PIK
interest is periodically added to the principal balance of the loan and recorded as interest income. The Investment Manager places a
receivable on non-accrual status when the collection of principal or interest is deemed doubtful. The amount of interest income recorded,
plus initial costs of underlying PIK interest is reviewed periodically to ensure that these do not exceed fair value of those assets.
The Company carries investments on its Consolidated Statement of Assets and Liabilities at fair value in accordance with US GAAP, with
changes in fair value recognised in the Consolidated Statement of Operations in each reporting period. Fair value is defined as the price
that would be received on the sale of an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market
participants at the measurement date.
Quoted investments are valued according to their bid price at the close of the relevant reporting date. Investments in private securities are
priced at the bid price using a pricing service for private loans.
If a price cannot be ascertained from the above sources the Company will seek bid prices from third party broker/dealer quotes for the
investments. The Investment Manager believes that bid price is the best estimate of fair value and is in line with the valuation policy
adopted by the Company.
In cases where no third party price is available, or where the Investment Manager determines that the provided price is not an accurate
representation of the fair value of the investment, the Administrator will value such investments with the input of the Investment Manager
who will determine the valuation based on its fair valuation policy. As part of the investment fair valuation policy, the Investment Manager
prepares a fair valuation memorandum for each such investment presenting the methodology and assumptions used to derive the price.
This analysis is presented to the Investment Manager’s Valuation Committee for approval.
The following criteria are considered when applicable:
The valuation of other securities by the same issuer for which market quotations are available;
The reasons for absence of market quotations;
The soundness of the security, its interest yield, the date of maturity, the credit standing of the issue and the current general interest
rates;
Any recent sales prices and/or bid and ask quotations for the security;
The value of similar securities of issuers in the same or similar industries for which market quotations are available;
The economic outlook of the industry;
The issuer’s position in the industry;
The financial statements of the issuer; and
The nature and duration of any restriction on disposition of the security.
78 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(h) Derivative Contracts
The Company may, from time to time, hold derivative financial instruments for the purposes of managing foreign currency exposure and to
provide a measure of protection against defaults of corporate or sovereign issuers. These derivatives are measured at fair value in
conformity with US GAAP with changes in fair value recognised under Realised and unrealised (loss)/gain from investments and foreign
exchange in the Consolidated Statement of Operations in each reporting period.
As part of the Company’s investment strategy, the Company enters into over-the-counter (“OTC”) derivative contracts which may include
forward currency contracts, credit default swaps and total return swaps.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies on the reporting date and the
value recorded in the financial statements represents net unrealised gain and loss on forwards as at 31 December. Forward contracts are
generally categorised in Level 2 of the fair value hierarchy.
The credit default swap has been entered into on the OTC market. The fair value of the credit default swap contract is derived using a
pricing service provided by Markit Partners. Markit Partners use a pricing model that is widely accepted by marketplace participants. Their
pricing model takes into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves,
recovery rates, and current credit spreads obtained from swap counterparties and other market participants. Many inputs into the model do
not require material subjectivity as they are observable in the marketplace or set per the contract. Other than the contract terms, valuation
is mainly determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is
generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying debt is
liquid and the OTC market for the current spread is active, credit default swaps are categorised in Level 2 of the fair value hierarchy. If the
underlying debt is illiquid and the OTC market for the current spread is not active, credit default swaps are categorised in Level 3 of the fair
value hierarchy.
The total return swap is valued using a mark to market prices provided by a third-party broker.
(i) Taxation
The Company is not subject to income taxes in Guernsey; however, it may be subject to taxes imposed by other countries on income it
derives from investments.
Such taxes are reflected in the Consolidated Statement of Operations. In accordance with US GAAP, management is required to
determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit
to be recognised is measured as the largest amount of benefit that is greater than fifty percent likely of being realised upon ultimate
settlement. De-recognition of a tax benefit previously recognised could result in the Company recording a tax liability that would reduce net
assets. US GAAP also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.
There were no uncertain tax positions as at 31 December 2023 or 31 December 2022. The Company files its tax returns as prescribed by
the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal
and certain state, local, and other foreign tax regulators. State, local and foreign tax returns, if applicable, are generally subject to audit
according to varying limitations dependent upon the jurisdiction. As of 31 December 2023, the Company's U.S. federal income tax returns
are subject to examination under the three-year statute of limitations.
During the year ended 31 December 2023, the Company recorded current income tax expense $Nil (31 December 2022 income tax
expense: $Nil). Deferred taxes are recorded to reflect the tax consequences of future years’ differences between the tax basis of assets
and their financial reporting basis. The deferred tax benefit recorded for the year ended 31 December 2023 was $Nil (31 December 2022
deferred tax benefit: $Nil). The net total income tax benefit/expense from realised/unrealised gains/(losses) on investments for the year
ended 31 December 2023 was $Nil (31 December 2022 income tax expense: $Nil).
(j) Operating Expenses
Operating expenses are recognised on an accruals basis. Operating expenses include amounts directly or indirectly incurred by the
Company as part of its operations. Each share class will bear its respective pro-rata share based on its respective Net Asset Value (‘NAV’)
of the ongoing costs and expenses of the Company. Each share class will also bear all costs and expenses of the Company determined
by the Directors to be attributable solely to it. Any costs incurred by a share buyback are charged to that share class.
79 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 3 – DERIVATIVES
In the normal course of business, the Company uses derivative contracts in connection with its proprietary trading activities. Investments in
derivative contracts are subject to additional risks that can result in a loss of all or part of the derivative investment. The Company’s
derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: foreign currency exchange
rate, credit, and equity price. In addition to its primary underlying risks, the Company is also subject to additional counterparty risk due to
inability of its counterparties to meet the terms of their contracts.
Forward Currency Contracts
The Company enters into forwards for the purposes of managing foreign currency exposure.
Credit Default Swap
The Company uses credit default swap agreements on corporate or sovereign issues to provide a measure of protection against defaults of
the issuers (i.e., to reduce risk where a Company owns or has exposure to the referenced obligation) from time to time.
There was one credit default swap position (Brazilian Government) held as at 31 December 2023 (31 December 2022: one).
Total Return Swap
The Company entered into two fully funded total return swaps on 2 May 2011 and 18 April 2012. These swaps matured on 25 February
2020 and rolled over into a new swap agreement. New ISDA regulations enacted in 2019 require booking the total return swaps with cash
collateral maintained vs fully funded swaps.
The new swap rolls on an annual basis. The swap was booked on 02 March 2022 and matured on 01 February 2023. A realised event
occurred on the value of the swap as at 01 February 2023 $2,075,537. The next maturity will occur on 01 February 2024. The value of the
swap, exclusive of related cash collateral, as at 31 December 2023 is $3,648,201 (31 December 2022: $1,558,420) representing a change
in market value of $1,572,664 in the period since the 01 February 2023 maturity.
As at 31 December 2023 the net value of the swap and related cash collateral was $14,618,201 (31 December 2022: $12,528,420)
(comprised of restricted cash collateral of $10,970,000 (31 December 2022: $10,970,000) and total return swap asset of $ 3,648,201 (31
December 2022: swap asset of $1,558,420), as reflected in the Consolidated Statement of Assets and Liabilities. The underlying asset of
the swaps is denominated in Brazilian Real and the foreign exchange exposure is hedged to offset any change in value in underlying asset
due to the FX movements.
Derivative activity
For the year ended 31 December 2023 and 31 December 2022 the volume of the Company’s derivative activities based on their notional
amounts and number of contracts, categorised by primary underlying risk, are as follows:
31 DECEMBER 2023 LONG EXPOSURE SHORT EXPOSURE
PRIMARY UNDERLYING RISK NOTIONAL AMOUNTS
NUMBER OF CONTRACTS
NOTIONAL AMOUNTS
NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $127,841,170 61 $125,731,102 77
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
31 DECEMBER 2022 LONG EXPOSURE SHORT EXPOSURE
PRIMARY UNDERLYING RISK NOTIONAL AMOUNTS
NUMBER OF CONTRACTS
NOTIONAL AMOUNTS
NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $131,688,489 61 $107,370,134 64
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
80 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 3 – DERIVATIVES (CONTINUED)
Derivative activity (continued)
The following tables show, as at 31 December 2023 and 31 December 2022, the fair value amounts of derivative contracts included in the
Consolidated Statement of Assets and Liabilities, categorised by primary underlying risk. Balances are presented on a gross basis prior to
application of the impact of counterparty and collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to
take into account the effects of master netting arrangements and, where applicable, have been adjusted by the application of cash
collateral receivables and payables with its counterparties. The tables also identify, as at 31 December 2023 and 31 December 2022, the
realised and unrealised gain and loss amounts included in the Consolidated Statement of Operations, categorised by primary underlying
risk:
31 DECEMBER 2023
PRIMARY UNDERLYING RISK
DERIVATIVE
ASSETS
($)
DERIVATIVE
LIABILITIES
($)
REALISED GAIN
(LOSS)
($)
NET CHANGE IN
UNREALISED GAIN
(LOSS)
($)
Foreign currency exchange rate
Forward currency contracts 18,235 (1,545,570) (1,975,088) (269,987)
Credit
Purchased protection
Credit default swap - (21,309) (84,550) 3,223
Total return swap 3,648,201 - - 2,078,684
31 DECEMBER 2022
PRIMARY UNDERLYING RISK
DERIVATIVE
ASSETS
($)
DERIVATIVE
LIABILITIES
($)
REALISED GAIN
(LOSS)
($)
NET CHANGE IN
UNREALISED GAIN
(LOSS)
($)
Foreign currency exchange rate
Forward currency contracts 12,018
(1,269,365) 1,963,445 (1,667,174)
Credit
Purchased protection
Credit default swap -
(21,494) 37,783 (8,853)
Total return swap 1,558,420 - - 2,433,541
Offsetting assets and liabilities
Amounts due from and to brokers are presented on a net basis, by counterparty, to the extent the Company has the legal right to offset the
recognised amounts and intends to settle on a net basis.
The Company presents on a net basis the fair value amounts recognised for OTC derivatives executed with the same counterparty under
the same master netting agreement.
The Company is required to disclose the impact of offsetting assets and liabilities presented in the Consolidated Statement of Assets and
Liabilities to enable users of the Financial Statements to evaluate the effect or potential effect of netting arrangements on its financial
position for recognised assets and liabilities.
These recognised assets and liabilities include financial instruments and derivative contracts that are either subject to an enforceable
master netting arrangement or similar agreement or meet the following right of set off criteria:
each of the two parties owes the other determinable amounts;
the Company has the right to set off the amounts owed with the amounts owed by the other party;
the Company intends to set off; and
the Company’s right of set off is enforceable at law.
81 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 3 – DERIVATIVES (CONTINUED)
Offsetting assets and liabilities (continued)
The Company is subject to enforceable master netting agreements with its counterparties of credit default swap, the total return swaps and
foreign currency exchange contracts. These agreements govern the terms of certain transactions and reduce the counterparty risk associated
with relevant transactions by specifying offsetting mechanisms and collateral posting arrangements at pre‑arranged exposure levels.
Derivative activity
The following tables, as at 31 December 2023 and 31 December 2022, show the gross and net derivatives assets and liabilities by
contract type and amount for those derivatives contracts for which netting is permissible.
31 DECEMBER 2023
(EXPRESSED IN US DOLLARS)
AMOUNTS NOT OFFSET IN THE
CONSOLIDATED STATEMENT
OF ASSETS AND LIABILITIES
DESCRIPTION
GROSS
AMOUNTS OF
RECOGNISED
ASSETS
GROSS AMOUNTS
OFFSET IN THE
CONSOLIDATED
STATEMENTS OF
ASSETS AND
LIABILITIES
NET AMOUNTS OF
RECOGNISED ASSETS
PRESENTED IN THE
CONSOLIDATED
STATEMENT OF ASSETS
AND LIABILITIES
FINANCIAL
INSTRUMENTS
(POLICY
ELECTION)
FINANCIAL
COLLATERAL
RECEIVED
1
NET
AMOUNT
Forward
c
urrency
contracts 18,235 - 18,235 (18,235) - -
Total return swaps 3,648,201 - 3,648,201 - - 3,648,201
Total 3,666,436 - 3,666,436 (18,235) - 3,648,201
AMOUNTS NOT OFFSET IN THE
CONSOLIDATED STATEMENT
OF ASSETS AND LIABILITIES
DESCRIPTION
GROSS
AMOUNTS OF
RECOGNISED
LIABILITIES
GROSS AMOUNTS
OFFSET IN THE
CONSOLIDATED
STATEMENTS OF
ASSETS AND
LIABILITIES
NET AMOUNTS OF
RECOGNISED ASSETS
PRESENTED IN THE
CONSOLIDATED
STATEMENT OF ASSETS
AND LIABILITIES
FINANCIAL
INSTRUMENTS
(POLICY
ELECTION)
FINANCIAL
COLLATERAL
RECEIVED
1
NET
AMOUNT
Forward
c
urrency
contracts (1,545,570) - (1,545,570) 18,235 790,000 (737,335)
Credit default swap (21,309) - (21,309) - - (21,309)
Total (1,566,879) - (1,566,879) 18,235 790,000 (758,644)
1
The amount netted off is a portion of the total collateral as per the Consolidated Statement of Assets and Liabilities.
82 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 3 – DERIVATIVES (CONTINUED)
Offsetting assets and liabilities (continued)
Derivative activity (continued)
The following table, as at 31 December 2022, show the gross and net derivatives assets and liabilities by contract type and amount for
those derivatives contracts for which netting is permissible.
31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
AMOUNTS NOT OFFSET IN THE
CONSOLIDATED STATEMENT
OF ASSETS AND LIABILITIES
DESCRIPTION
GROSS
AMOUNTS OF
RECOGNISED
ASSETS
GROSS AMOUNTS
OFFSET IN THE
CONSOLIDATED
STATEMENTS OF
ASSETS AND
LIABILITIES
NET AMOUNTS OF
RECOGNISED ASSETS
PRESENTED IN THE
CONSOLIDATED
STATEMENT OF ASSETS
AND LIABILITIES
FINANCIAL
INSTRUMENTS
(POLICY
ELECTION)
FINANCIAL
COLLATERAL
RECEIVED
1
NET
AMOUNT
Forward
c
urrency
contracts 12,018 - 12,018 (12,018) - -
Total return swaps 1,558,420 - 1,558,420 - - 1,558,420
Total 1,570,438 - 1,570,438 (12,018) - 1,558,420
AMOUNTS NOT OFFSET IN THE
CONSOLIDATED STATEMENT
OF ASSETS AND LIABILITIES
DESCRIPTION
GROSS
AMOUNTS OF
RECOGNISED
LIABILITIES
GROSS AMOUNTS
OFFSET IN THE
CONSOLIDATED
STATEMENTS OF
ASSETS AND
LIABILITIES
NET AMOUNTS OF
RECOGNISED ASSETS
PRESENTED IN THE
CONSOLIDATED
STATEMENT OF ASSETS
AND LIABILITIES
FINANCIAL
INSTRUMENTS
(POLICY
ELECTION)
FINANCIAL
COLLATERAL
RECEIVED
1
NET
AMOUNT
Forward
c
urrency
contracts (1,269,365) - (1,269,365) 12,018 - (1,257,347)
Credit default swap (21,494) - (21,494) -
- (21,494)
Total (1,290,859) - (1,290,859) 12,018 - (1,278,841)
1
The amount netted off is a portion of the total collateral as per the Consolidated Statement of Assets and Liabilities.
83 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 4 – RISK FACTORS
The Company’s investments are subject to various risk factors including market and credit risk, interest rate and foreign exchange risk,
and the risks associated with investing in private securities. Investments in private securities and partnerships are illiquid, and there can be
no assurances that the Company will be able to realise the value of such investments in a timely manner. Additionally, the Company’s
investments may be highly concentrated in certain industries. Non-US dollar denominated investments may result in foreign exchange
losses caused by devaluations and exchange rate fluctuations. In addition, consequences of political, social, economic, diplomatic
changes or public health condition may have disruptive effects on market prices or fair valuations of foreign investments.
Market Risk
Market risk is the potential for changes in the value of investments. Categories of market risk include, but are not limited to, interest rates.
Interest rate risks primarily result from exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest
rates and credit spreads. Details of the Company’s investment Portfolio as at 31 December 2023 and 31 December 2022 are disclosed in
the Consolidated Condensed Schedule of Investments. Each separate investment exceeding 5% of net assets is disclosed separately.
Credit Risk
The Company may invest in a range of corporate and other bonds and other credit sensitive securities. Until such investments are sold or
are paid in full at maturity, the Company is exposed to credit risk relating to whether the issuer will meet its obligations when the securities
fall due. Distressed debt securities by nature are securities in companies which are in default or are heading into default and will expose
the Company to a higher than normal amount of credit risk.
The Company may invest a relatively large percentage of its assets in issuers located in a single country, a small number of countries, or a
particular geographic region. As a result, the Company’s performance may be closely aligned with the market, currency or economic,
political or regulatory conditions and developments in those countries or that region, and could be more volatile than the performance of
more geographically diversified investments. Refer to the Consolidated Condensed Schedules of Investments on pages 64 to 71 for
concentration of credit risk.
The Company maintains positions in a variety of securities, derivative financial instruments and cash and cash equivalents in accordance
with its investment strategy and guidelines. The Company’s trading activities expose the Company to counterparty credit risk from brokers,
dealers and other financial institutions (collectively, “counterparties”) with which it transacts business. “Counterparty credit risk” is the risk
that a counterparty to a trade will fail to meet an obligation that it has entered into with the Company, resulting in a financial loss to the
Company. The Company’s policy with respect to counterparty credit risk is to minimise its exposure to counterparties with perceived higher
risk of default by dealing only with counterparties that meet the credit standards set out by the Investment Manager.
All the Company's cash and investment assets other than derivative financial instruments are held by the Custodian. The Custodian
segregates the assets of the Company from the Custodian’s assets and other Custodian clients. Management believes the risk is low with
respect to any losses as a result of this concentration. The Company conducts its trading activities with respect to non-derivative positions
with a number of counterparties. Counterparty credit risk borne by these transactions is mitigated by trading with multiple counterparties.
In addition, the Company may trade in OTC derivative instruments and in derivative instruments which trade on exchanges with generally
a limited number of counterparties and as a consequence the Company is subject to counterparty credit risk related to the potential
inability of counterparties to these derivative transactions to perform their obligations to the Company. The Company’s exposure to
counterparty credit risk associated with counterparty non-performance is generally limited to the fair value (derivative assets and liabilities)
of OTC derivatives reported as net assets, net of collateral received or paid, pursuant to agreements with each counterparty. The
Investment Manager attempts to reduce the counterparty credit risk of the Company by establishing certain credit terms in its International
Swaps and Derivatives Association (ISDA) Master Agreements (with netting terms) with counterparties, and through credit policies and
monitoring procedures. Under ISDA Master Agreements in certain circumstances (e.g. when a credit event such as a default occurs) all
outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is due or
payable in settlement of all transactions. The Company receives and gives collateral in the form of cash and marketable securities and it is
subject to the ISDA Master Agreement Credit Support Annex. This means that securities received/given as collateral can be pledged or
sold during the term of the transaction. The terms also give each party the right to terminate the related transactions on the other party’s
failure to post collateral. Exchange-traded derivatives generally involve less counterparty exposure because of the margin requirements of
the individual exchanges.
Generally, these contracts can be closed out at the discretion of the Investment Manager and are governed by the futures and options
clearing agreements signed with the future commission merchants (“FCMs”). FCMs have capital requirements intended to assure that they
have sufficient capital to protect their customers in the event of any inadequacy in customer funds arising from the default of one or more
customers, adverse market conditions, or for any other reason. The credit risk relating to derivatives is detailed further in Note 3.
84 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 4 – RISK FACTORS (CONTINUED)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its obligations as and when these fall due.
Liquidity risk is managed by the Investment Manager so as to ensure that the Company maintains sufficient working capital in cash or
near cash form so as to be able to meet the Company’s ongoing requirements as these are budgeted for.
Other Risks
The invasion of Ukraine is of concern and the Company has considered its potential impact on asset values, and while no direct
impact has been identified, values are affected by its impact on the global economy.
Legal, tax and regulatory changes could occur during the term of the Company that may adversely affect the Company. The
regulatory environment for alternative investment vehicles is evolving, and changes in the regulation of alternative investment vehicles
may adversely affect the value of investments held by the Company or the ability of the Company to pursue its trading strategies.
The impact of these risks can have a substantial impact on the valuation and ultimately the realisation of assets.
Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications.
Such disruptions can potentially adversely affect the assets, and thus the performance, of the Company. The Board continues to
monitor this situation.
NOTE 5 – SHARE CAPITAL
The Company’s authorised share capital consists of:
10,000 Class A Shares authorised, of par value $1 each (which carry no voting rights); and, an unlimited number of shares of no par
value which may, upon issue, be designated as Ordinary Shares, Extended Life Shares or New Global Shares and Subscription
Shares (each of which carry voting rights) or Capital Distribution Shares.
The issued share capital of the Company consists of Ordinary Shares, Class A Shares and Extended Life Shares, all denominated in
US dollars, and New Global Shares denominated in Pounds Sterling. Shareholders of Ordinary Shares, Extended Life Shares and
New Global Shares have the right to attend and vote at any general meeting of the Company. Class A shareholders do not have the
right to attend and vote at a general meeting of the Company save where there are no other shares of the Company in issue.
The Class A Shares are held by Suntera Trustees (Guernsey) Limited (formerly named Carey Trustees Limited) (the “Trustee”),
pursuant to a Purpose Trust established under Guernsey law. Under the terms of the NBDDIF Purpose Trust Deed, the Trustee holds
the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company but the Trustee shall
only have the right to attend and vote at general meetings of the Company when there are no other shares of the Company in issue.
The original investment period expired on 10 June 2013 and a proposal was made to Ordinary Shareholders to extend the investment
period by 21 months to 31 March 2015. A vote was held at a class meeting of shareholders on 8 April 2013 where the majority of
shareholders voted in favour of the proposed extension.
Following this meeting and with the Ordinary Shareholders approval of the extension, a new class, the Extended Life Shares, was
created and the Extended Life Shares were issued to 72% of initial Investors who elected to convert their Ordinary Shares to
Extended Life Shares. The rest of investors remain invested on the basis of the existing investment period.
85 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 5 – Share Capital
The New Global Share Class was created in March 2014 and its investment period ended on 31 March 2017.
As at 31 December 2023, the Company had the following number of shares in issue:
Issued and fully paid up
31 DECEMBER 2023 31 DECEMBER 2022
Class A Shares
2 2
Ordinary Share Class of no par value (Nil in treasury; 2022: Nil)
15,382,770 15,382,770
Extended Life Share Class of no par value (Nil in treasury; 2022: Nil)
44,234,790
60,116,016
New Global Share Class of no par value (Nil in treasury; 2022: Nil)
27,821,698 31,023,609
Reconciliation of the number of shares in issue in each class (excluding Class A) as at 31 December 2023:
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES TOTAL
Balance as at 31 December 2022 15,382,770 60,116,016 31,023,609 106,522,395
Shares redeemed during the
year
-
(15,881,226)
(3,201,911)
(19,083,137)
Buybacks (Shares repurchased) - - - -
Balance as at 31 December 2023
1
15,382,770 44,234,790 27,821,698 87,439,258
1
Balance of issued shares used to calculate NAV
Reconciliation of the number of shares in issue in each class (excluding Class A) as at 31 December 2022:
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES TOTAL
Balance a
s a
t 31 December 20
21
15,382,770
80,545,074
41,116,617
137,044,461
Shares redeemed during the year - (20,429,058) (10,093,008) (30,522,066)
Buybacks (Shares repurchased)
-
-
-
-
Balance as at 31 December 2022
1
15,382,770
60,116,016
31,023,609
106,522,395
1
Balance of issued shares used to calculate NAV
Distributions
Set out below are details of the capital returns by way of compulsory partial redemptions approved during the year ended 31
December 2023 and 31 December 2022.
31 DECEMBER 2023
ORDINARY SHARE CLASS
EXTENDED LIFE SHARE CLASS
NEW GLOBAL SHARE CLASS
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
02 May 2023 -
-
-
$8,149,711
8,487,514
$0.9602
$2,697,863
3,201,911
$0.8426
29 June 2023
-
-
-
$
3,352,980
3,753,056
$
0.8934
-
-
-
11
September
2023
-
-
-
$
3,754,972
3,640,656
$
1.0314
-
-
-
-
-
$15,257,663
15,881,226
3,201,911
31 DECEMBER 2022
ORDINARY SHARE CLASS
EXTENDED LIFE SHARE CLASS
NEW GLOBAL SHARE CLASS
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
DISTRIBUTION
AMOUNT
NUMBER OF
SHARES
PER SHARE
AMOUNT
21 November 2022 -
-
-
$18,968,380
20,429,058
$0.9285
$8,036,339
10,093,008
$0.7962
-
-
$18,968,380
20,429,058
$8,036,339
10,093,008
86 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 5 – SHARE CAPITAL (CONTINUED)
Buybacks
No shares were repurchased by the Company during either the year ended 31 December 2023 and 31 December 2022.
NOTE 6 – MATERIAL AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Management Agreement (“IMA”)
The Board is responsible for managing the business affairs of the Company but delegates certain functions to the Investment
Manager under an IMA dated 9 June 2010 (as amended).
On 17 July 2014, the Company, the Manager and the AIFM made certain classificatory amendments to their contractual arrangements
for the purposes of the AIFM Directive. The Sub-Investment Management Agreement was terminated on 17 July 2014 and Neuberger
Berman Investment Advisers LLC (formerly Neuberger Berman Fixed Income LLC), which was the Sub-Investment Manager, was
appointed as the AIFM per the amended and restated IMA dated 17 July 2014. Under this agreement, the AIFM is responsible for risk
management and day-to-day discretionary management of the Company’s Portfolios (including uninvested cash). The risk
management and discretionary portfolio management functions are performed independently of each other within the AIFM structure.
The AIFM is not required to, and generally will not, submit individual investment decisions for approval by the Board. The Manager,
Neuberger Berman Europe Limited, was appointed under the same IMA to provide, amongst other things, certain administrative
services to the Company. On 31 December 2017 the Company entered into an Amendment Agreement amending the IMA. On the 30
January 2023 the Company entered into an Amendment Agreement amending the IMA for data protection purposes to note the
obligation on the recipient UK investment manager to comply with the new SCCs in transferring personal data to the US AIFM.
Per the IMA and in relation to the Ordinary Shares and Extended Life Shares, the Manager was entitled to a management fee, which
shall be accrued daily, and was payable monthly in arrears, at a rate of 0.125% per month of the respective NAVs of the Ordinary
Share and Extended Life Share classes. Soft commissions were not used.
Per the IMA and in relation to the New Global Shares, the Manager was entitled to a management fee, which accrued daily, and was
payable monthly in arrears, at a rate of 0.125% per month of the NAV of the New Global Share Class (excluding, until such time as
the New Global Share Class had become 85% invested, any cash balances (or cash equivalents)). The 85% threshold was crossed
on 16 June 2015 and from such date the Company was charged 0.125% per month on the NAV of the New Global Share Class.
Effective 18 March 2021, the Investment Manager had waived its entitlement to all fees from the Company. Accordingly, there was no
management fees expensed in the year or the preceding financial year nor were any fees outstanding at either 31 December 2023 or
31 December 2022.
Administration, Company Secretarial and Custody Agreements
Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bank Global Fund
Services (Guernsey) Limited and U.S. Bank Global Fund Services (Ireland) Limited, a wholly-owned subsidiary of U.S. Bancorp (the
“Administration Agreement”). Under the terms of the Administration Agreement, Sub-Administration services are delegated to U.S.
Bank Global Fund Services (Ireland) Limited (the “Sub-Administrator”). The Sub-Administration Service Level Agreement was
amended and approved on 21 February 2018.
The Sub-Administrator is responsible for the day-to-day administration of the Company (including but not limited to the calculation and
publication of the estimated daily NAV).
Under the terms of the Administration Agreement, the Sub-Administrator is entitled to a fee of 0.09% for the first $500m of net asset
value, 0.08% for the next $500m and 0.07% for any remaining balance, accrued daily and paid monthly in arrears and subject to an
annual minimum of $100,000.
Effective 28 February 2015, the Company entered into a Custody Agreement with U.S. Bank National Association (the “Custodian”) to
provide loan administration and custody services to the Company. Under the terms of the Custody Agreement the Custodian is
entitled to an annual fee of 0.025% of net asset value with a minimum annual fee of $25,000.
87 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 6 – MATERIAL AGREEMENTS AND RELATED PARTY TRANSACTIONS (CONTINUED)
Administration, Company Secretarial and Custody Agreements (continued)
Effective 20 June 2017, Suntera (Guernsey) Limited (formerly named Carey Commercial Limited) was appointed the Company
Secretary. The Company Secretary is entitled to an annual fee of £73,000 plus fees for ad-hoc board meetings and additional
services.
For the year ended 31 December 2023, the administration fee expense was $87,547 (31 December 2022: $97,879), the secretarial
fee was $116,888 of which $Nil
1
was in relation to the administration of the ongoing buyback programme, (31 December 2022:
$109,316
1
) and the loan administration and custody fee expense was $30,743
1
(31 December 2022: $24,726
1
). At 31 December 2023,
the administration fee payable is $5,852
2
(31 December 2022: $5,955
2
), the secretarial fee payable is $25,450
2
(31 December 2022:
$24,559
2
) and the loan administration and custody fee payable is $9,088
2
(31 December 2022: $3,344
2
).
1
Amount is included under Professional and other expenses in the Consolidated Statement of Operations
2
Amounts are included under Accrued expenses and other liabilities in the Consolidated Statement of Assets and Liabilities and Consolidated Statement of Operations
Directors’ Remuneration and Other Interests
The Directors are related parties and are remunerated for their services at a fee of $45,000 plus £10,000 each per annum ($60,000
plus £10,000 for the Chairman, $50,000 plus £10,000 for the Chairman of the Audit Committee). For the year ended 31 December
2023, the Directors’ fees and travel expenses amounted to $193,450 (31 December 2022: $188,088). Michael J. Holmberg, the non-
independent Director, has waived the fees for his services as a Director. There were no other related interests for the year ended 31
December 2023.
The Company has not set any requirements or guidelines for Directors to own shares in the Company. The beneficial interests of the
Directors and their connected persons in the Company’s shares as at 31 December 2023 are shown in the table below:
DIRECTOR
NO. OF ORDINARY
SHARES
NO. OF EXTENDED LIFE
SHARES
NO. OF NEW GLOBAL
SHARES
TOTAL NO. OF
SHARES
John Hallam
-
40,507
33,462
73,969
Michael Holmberg
-
17,885
34,982
52,867
Christopher Legge
-
-
-
-
Stephen Vakil
-
-
18,253
18,253
88 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 7 – FINANCIAL HIGHLIGHTS
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
($) ($) (£) ($) ($) (£)
PER SHARE OPERATING
PERFORMANCE
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
202
2
YEAR ENDED
31 DECEMBER
2022
YEAR ENDED
31 DECEMBER
2022
Net asset value per share at
beginning of the year 0.7730 0.9728 0.6640 0.9028 0.9243 0.5785
Impact of capital distribution
-
0.0069 0.0001 - - -
Impact of dividend distribution -
- -
- 0.0025 (0.0052)
Income from investment
operations
1
Net investment income
0.0014 0.0139 0.0214
0.0015 0.0605 0.0531
Net realised and unrealised
gain/(loss) from investments and
foreign exchange
0.03
2
7
0.03
76
(0.0616)
(0.1313)
(0.0145)
0.0
376
Gain/(loss) from investment
operations 0.0341 0.0515 (0.0402)
(0.1298)
0.0460 0.0907
Net asset value per share at
end of the year
2
0.80
7
1
1.03
12
0.6239
0.7730
0.9728
0.6640
1
Weighted average number of shares outstanding was used for calculation.
2
Each share classes net assets includes the underlying assets and liabilities directly attributable to the respective share class.
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
($)
($)
(£)
($)
($)
(£)
NAV TOTAL RETURN
2, 3
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2022
YEAR ENDED
31 DECEMBER
2022
YEAR ENDED
31 DECEMBER
2022
NAV Total Return before
performance fee 4.41% 6.00% (6.04%) (14.38%) 5.25% 14.78%
NAV Total Return after
performance fee including an
income distribution by way of
dividend
4.41% 6.00% (6.04%) (14.38%) 5.25% 14.78%
2
NAV Total Return is calculated for the Ordinary Shares, Extended Life Shares and New Global Shares only and is calculated based on movement in the NAV and does not
reflect any movement in the market value of the shares. A shareholder’s return may vary from these returns based on participation in new issues, the timing of capital
transactions etc. It assumes that all income distributions of the Company, paid by way of dividend, were reinvested, without transaction costs. Class A shares are not
presented as they are not profit participating shares.
3
An individual shareholder’s return may vary from these returns based on the timing of the shareholder’s subscriptions.
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
ORDINARY
SHARES
EXTENDED LIFE
SHARES
NEW GLOBAL
SHARES
($) ($) (£) ($) ($) (£)
RATIO TO AVERAGE NET ASSETS
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2023
YEAR ENDED
31 DECEMBER
2022
YEAR ENDED
31 DECEMBER
2022
YEAR ENDED
31 DECEMBER
2022
Net investment income before and
after performance fees
0.18% 1.40% 3.24% 0.17% 6.46% 8.36%
Total expenses and performance fee (1.28%) (1.38%) (2.21%) (0.97%) (0.99%) (1.33%)
89 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
NOTE 8 – RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments relating to investment valuations. The impact of these adjustments on the
NAV per Ordinary Share, Extended Life Share and New Global Share is detailed below:
ORDINARY
SHARE CLASS
NET ASSETS
($)
ORDINARY
SHARE CLASS
NAV PER SHARE
($)
EXTENDED LIFE
SHARE CLASS
NET ASSETS
($)
EXTENDED LIFE
SHARE CLASS
NAV PER SHARE
($)
NEW GLOBAL
SHARE CLASS
NET ASSETS
(£)
NEW GLOBAL
SHARE CLASS
NAV PER SHARE
(£)
Published net assets as at 31 December 2023 12,323,608 0.8011
45,378,194 1.0258
17,358,035 0.6239
Valuation adjustments 91,623 0.0060
236,291 0.0054
- -
Net assets per Consolidated Financial
Statements 12,415,231 0.8071
45,614,485 1.0312
17,358,035 0.6239
ORDINARY
SHARE CLASS
NET ASSETS
($)
ORDINARY
SHARE CLASS
NAV PER SHARE
($)
EXTENDED LIFE
SHARE CLASS
NET ASSETS
($)
EXTENDED LIFE
SHARE CLASS
NAV PER SHARE
($)
NEW GLOBAL
SHARE CLASS
NET ASSETS
(£)
NEW GLOBAL
SHARE CLASS
NAV PER SHARE
(£)
Published net assets as at 31 December 2022 11,930,152
0.7756
58,517,599
0.9734
20,524,544
0.6616
Valuation adjustments (39,831)
(0.0026)
(39,609)
(0.0006)
74,365
0.0024
Net assets per Consolidated Financial
Statements
11,890,321
0.7730
58,477,990
0.9728
20,598,909
0.6640
NOTE 9 – SUBSEQUENT EVENTS
The Directors have evaluated subsequent events up to 25 April 2024, which is the date that the financial statements were available to
be issued.
There are no further items that require disclosure or adjustment to Financial Statements.
90 NB DISTRESSED DEBT INVESTMENT FUND LIMITED
Contact Details
Directors
John Hallam (Chairman)
Michael Holmberg
Christopher Legge
Stephen Vakil
All c/o the Company's registered office.
Registered Office
1
st
& 2
nd
Floors, Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
Company Secretary
Suntera (Guernsey) Limited (formerly named
Carey Commercial Limited)
Alternative Investment Fund Manager
Neuberger Berman Investment Advisers LLC
Manager
Neuberger Berman Europe Limited
Custodian and Principal Bankers
US Bank National Association
Designated Administrator
U.S. Bank Global Fund Services (Guernsey)
Limited
Independent Auditor
KPMG Channel Islands Limited
Sub–Administrator
U.S. Bank Global Fund Services (Ireland)
Limited
Financial Adviser and Corporate Broker
Jefferies International Limited
Solicitors to the Company (as to English
law and U.S. securities law)
Herbert Smith Freehills LLP
Advocates to the Company (as to
Guernsey law)
Carey Olsen
Registrar
Link Market Services (Guernsey) Limited
UK Transfer Agent
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom
Shareholders holding shares directly and not
through a broker, saving scheme or ISA and
have queries in relation to their shareholdings
should contact the Registrar on +44 (0)371
664 0445. (Calls are charged at the standard
geographic rate and will vary by provider.
Calls outside the United Kingdom will be
charged at the applicable international rate.
Lines are open between 9 a.m. to 5:30 p.m.
(excluding bank holidays)). Shareholders can
also access their details via the Registrar’s
website:
www.signalshares.com.
Full contact details of the Company’s
advisers and Manager can be found on the
Company’s website.
ADDITIONAL INFORMATION | Contact Details