Interim Management Statement

RNS Number : 1789T

NB Distressed Debt Invest. Fd. Ltd

15 November 2013

 



NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

15 November 2013

NB DISTRESSED DEBT INVESTMENT FUND LIMITED

INTERIM MANAGEMENT STATEMENT

NB Distressed Debt Investment Fund Limited ("NBDDIF"), is publishing this Interim Management Statement in accordance with DTR 4.3 of the FCA Handbook.

This Interim Management Statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the FCA's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purpose.

This Interim Management Statement contains information that covers the period between 1 July 2013 and the date of publication of this Interim Management Statement, unless otherwise specified.

Investment Manager's Review

Summary

We were gratified to see the positive NAV movement achieved in the third quarter and year-to-date. In the third quarter we exited three positions, which contributed to the increase in our NAV. We continue to see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments. We believe the pipeline of distressed debt opportunities remains robust in our sectors of interest.

Portfolio

Extended Life Shares

As at 30 September 2013, 95.7% of the NBDDIF Extended Life Share class NAV ("NBDX's NAV") was invested in distressed assets, with investments in 53 companies diversified across 17 industries. NBDX's NAV per share increased 12.0% in the first nine months of 2013, to $1.2059 from $1.0766 per share. We believe our performance year-to-date compares favourably with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index which returned 9.1% in the first nine months of 2013 and Bloomberg's BAIF-Distressed Securities benchmark which returned 8.5% over the same period. In the third quarter, NAV per share increased 2.0%, primarily due to mark-to-market gains on positions which reached key restructuring milestones or made progress post-reorganization. During the quarter, we saw our fifteenth, sixteenth and seventeenth exits since inception, which are described in detail below. We also added incrementally to existing names and initiated positions in the multifamily residential real estate and lodging/gaming industries.

We continue to experience an improving environment for distressed debt in our sectors of interest. The pipeline of opportunities in real estate, transportation and energy debt is particularly compelling, both in the U.S. and Europe. EU banks in particular have increased their disposal of European and U.S. loans and assets to a run-rate of €60 billion year-to-date 2013, versus €46 billion in 2012, €36 billion in 2011 and €11 billion in 2010. However, over €900 billion of Non-Performing Loans (NPLs) remain on EU banks' balance sheets and NPLs continue to increase year-to-date. The ECB is scheduled to assume supervisory authority for all euro-area lenders in 2014. We believe that an ECB-sponsored harmonization of NPL definition across countries may facilitate further recognition and disposal of distressed loans. In the U.S. we continue to see a healthy pipeline of distressed assets in real estate, energy and other asset-intensive sectors.

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

Ordinary Shares

As at 30 September 2013, 93.7% of the NBDDIF Ordinary Share class NAV ("NBDD's NAV") was invested in distressed assets, with investments in 51 companies diversified across 17 industries. NBDD's NAV per share increased 11.6% in the first nine months of 2013, to $1.2012 from $1.0766 per share. NAV at 30 September 2013 was reduced by an accrual for performance fees of $0.0125 per share. We believe our performance year-to-date compares favourably with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index which returned 9.1% in the first nine months of 2013 and Bloomberg's BAIF-Distressed Securities benchmark which returned 8.5% over the same period. In the third quarter, NAV per share increased 1.5%, primarily due to mark-to-market gains on positions which reached key restructuring milestones or made progress post-reorganization. During the quarter, we saw our fifteenth, sixteenth and seventeenth exits since inception, which are described in detail below.

Investment Exits

Extended Life Shares

In the third quarter we had three exits, bringing our total to seventeen exits since inception. The exits generated $4.2 million of total income and gains for the fund and included our most profitable exit to date in the life of NBDDIF (Investment Fifteen).

Investment Fifteen: We purchased $20.8 million face value of defaulted bonds at 57.0% of par. The bonds had a senior claim in the liquidation of a real estate finance company. We believed that our entry point represented a significant discount relative to the ultimate recoveries on the company's loans and other real estate-related assets. The company emerged from bankruptcy and we received cash, new debt and equity in the reorganized entity. The wind-down of the company resulted in the repayment of post-petition debt and substantial distributions to shareholders and we subsequently sold our remaining equity position in the secondary market. Total income from this investment was $2.8 million achieving an internal rate of return ("IRR") of 22%. 

Investment Sixteen: We purchased $7.2 million face value of notes at 30.6% of par, secured by commercial jet aircraft. The notes were issued by an aircraft trust formed to purchase, own, lease and sell aircraft. We believed that the acquisition price significantly undervalued the ultimate market value of collateral aircraft. The trust subsequently sold its aircraft fleet and used the proceeds to pay down the principal in the trust. We sold the remaining notes in the secondary market and generated a total income from this investment of $0.7 million achieving an IRR of 31%.

Investment Seventeen: We purchased $6.0 million face value of bonds at 87.4% of par, backed by a diverse shipping fleet of dry bulk carriers, crude oil tankers and ultra deep-water rigs and drill ships. We believed that the debt would likely be refinanced or that in the event of default, we would ultimately own the assets at an attractive valuation. As industry conditions for the company improved this year, the bond price moved up and we sold into the secondary market at 97% of par. Total income from this investment was $0.7 million achieving an IRR of 33%.

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

Ordinary Shares

In the third quarter we had three exits, bringing our total to seventeen exits since inception. The exits generated $1.6 million of total income and gains for the fund and included our most profitable exit to date in the life of NBDDIF (Investment Fifteen).

Investment Fifteen: We purchased $8.0 million face value of defaulted bonds at 57.0% of par. The bonds had a senior claim in the liquidation of a real estate finance company. We believed that our entry point represented a significant discount relative to the ultimate recoveries on the company's loans and other real estate-related assets. The company emerged from bankruptcy and we received cash, new debt and equity in the reorganized entity. The wind-down of the company resulted in the repayment of post-petition debt and substantial distributions to shareholders and we subsequently sold our remaining equity position in the secondary market. Total income from this investment was $1.1 million achieving an IRR of 22%.

Investment Sixteen: We purchased $2.8 million face value of notes at 30.6% of par, secured by commercial jet aircraft. The notes were issued by an aircraft trust formed to purchased, own, lease and sell aircraft. We believed that the acquisition price significantly undervalued the ultimate market value of collateral aircraft. The trust subsequently sold its aircraft fleet and used the proceeds to pay down the principal in the trust. We sold the remaining notes in the secondary market and generated a total income from this investment of $0.3 million achieving an IRR of 31%. 

Investment Seventeen: We purchased $1.8 million face value of bonds at 86.8% of par, backed by a diverse shipping fleet of dry bulk carriers, crude oil tankers and ultra deep-water rigs and drill ships. We believed that the debt would likely be refinanced or that in the event of default, we would ultimately own the assets at an attractive valuation. As industry conditions for the company improved this year, the bond price moved up and we sold into the secondary market at 97% of par. Total income from this investment was $0.2 million achieving an IRR of 31%.

Material Events and Transactions

On 10 July 2013 31,978,973 additional Extended Life Shares were issued via a tap issue and US$38,370,930 was received in this regard.

Other than as reported above, there were no additional material events and transactions during the reporting period.

Report and Accounts

On 29 August 2013, the Company announced its interim results for the period ended 30 June 2013. On 6 September 2013, the Company posted its Interim Report and Financial Statements for the period ended 30 June 2013 to shareholders.

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

Financial Highlights

	31 October 2013	30 June 2013	14 May 2013	31 December 2012	31 October 2012
NAV per Ordinary Share
- US Dollars ($)	1.2071	1.1837	1.1788	1.0766	1.0541
NAV per Extended Share
- US Dollars ($)	1.2181	1.1824	1.1783	n/a	n/a

Investment Policy and Objective

The Company is a closed-ended investment company limited by shares registered and incorporated in Guernsey under the Companies Laws on 20 April 2010, with registration number 51774. The Company's primary 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.

Extended Life Shares

The Extended Life Share Class was created in April 2013 and is subject to an investment period ending on 31 March 2015, following which the assets will be placed into run-off. NBDDIF will seek to return to the holders of Extended Life Shares all net capital profits arising from the exit of any assets attributable to those shares, at least every six months, with the first such distribution expected to be made for the period ending 31 December 2013.

Ordinary Shares

On 10 June 2013, the Investment Period of the NBDDIF Ordinary Shares expired. The assets of NBDDIF attributable to the Ordinary Shares were placed into run-off following the expiry of the Investment Period. The net proceeds from the realization of such assets will be distributed to Ordinary Shareholders in such times and amounts as determined by the Board of Directors, with the first such distribution expected to be made for the period ending 31 December 2013.

The financial information covered herein for the period between 1 July 2013 and the date of publication of this interim management statement has not been audited.

By order of the Board

BNP Paribas Securities Services S.C.A., Guernsey Branch, for and on behalf of

NB Distressed Debt Investment Fund Limited

as Company Secretary

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

This document and the information contained herein is not for release, publication or distribution (directly or indirectly) in or into the United States, Canada, Australia or Japan or to any "US person" as defined in Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act") or into any other jurisdiction where applicable laws prohibit its release, distribution or publication. It does not constitute an offer of securities for sale anywhere in the world, including in or into the United States, Canada, Australia or Japan. No recipient may distribute, or make available, this document (directly or indirectly) to any other person. Recipients of this document in jurisdictions outside the UK should inform themselves about and observe any applicable legal requirements in their jurisdictions. In particular, the distribution of this document may in certain jurisdictions be restricted by law. Accordingly, recipients represent that they are able to receive this document without contravention of any applicable legal or regulatory restrictions in the jurisdiction in which they reside or conduct business.

This document has been prepared by NB Distressed Debt Investment Fund Limited ("NBDDIF") and is the sole responsibility of NBDDIF. No liability whatsoever (whether in negligence or otherwise) arising directly or indirectly from the use of this document is accepted and no representation, warranty or undertaking, express or implied, is or will be made by NBDDIF or NBEL or Neuberger Berman Fixed Income LLC ("NBFI") or Oriel Securities Limited ("Oriel Securities") or Winterflood Investment Trusts ("Winterflood") or any of their respective directors, officers, employees, advisers, representatives or other agents ("Agents") for any information or any of the opinions contained herein or for any errors, omissions or misstatements. None of Neuberger Berman LLC, NBEL, NBFI, NBDDIF, Oriel Securities, Winterflood  nor any of their respective Agents makes or has been authorised to make any representation or warranties (express or implied) in relation to NBDDIF or as to the truth, accuracy or completeness of this document, or any other written or oral statement provided. In particular, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on any projections, targets, estimates or forecasts contained in this document and nothing in this document is or should be relied on as a promise or representation as to the future.

NBDDIF will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and investors will not be entitled to the benefits of that Act. The securities described in this document have not been and will not be registered under the Securities Act, or the laws of any state of the United States. Consequently, such securities may not be offered, sold or otherwise transferred within the United States or to or for the account or benefit of U.S. persons (as such term is defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, applicable state laws and under circumstances which will not require NBDDIF to register under the Investment Company Act. No public offering of the securities is being made in the United States.

Neuberger Berman Europe Limited is authorised and regulated by the United Kingdom Financial Conduct Authority and whose registered address is at Lansdowne House, 57 Berkeley Square, London, W1J 6ER. Neuberger Berman LLC is a registered Investment Adviser and Broker Dealer and member of the New York Stock Exchange, the Financial Industry Regulation Authority and the Securities Investor Protection Corporation. Neuberger Berman Fixed Income LLC is a US registered Investment Adviser. Neuberger Berman is a registered trademark. All rights reserved. © 2012 Neuberger Berman.

 

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