Portfolio Update - Exended Life Shares

RNS Number : 5208S

NB Distressed Debt Invest. Fd. Ltd

08 November 2013

 



NB Distressed Debt Investment Fund Limited

Portfolio Update- Extended Life Shares

NB Distressed Debt Investment Fund Limited ("NBDDIF") is a Guernsey-incorporated closed-ended investment company that launched in June 2010. NBDDIF'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.

NBDDIF owns holdings diversified across distressed, stressed and special situations investments, with a focus on senior debt backed by hard assets. The portfolio is managed by the Distressed Debt team at Neuberger Berman, which sits within what we believe is one of the largest and most experienced credit teams in the industry.

The Extended Life Share Class ("NBDX") was created in April 2013¹ 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.

The Extended Life Shares are one of two classes of shares in NBDDIF. The other class is the Ordinary Share Class, which is subject to an investment period which ended on 10 June 2013. A separate factsheet is produced for that class.

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

As at 30 September 2013, 95.7% of NBDDIF Extended Life Share 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 Index² which returned 9.1% in the first nine months of 2013 and Bloomberg's BAIF-Distressed Securities benchmark³ 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 2010⁴. However, over €900 billion of non-performing loans remain on EU bank's balance sheets and NPLs continue to increase year-to-date⁵. 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.

Investment Exits

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.

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 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 $0.7 million.

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.

 Data as at 30 September 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDX.

1.       The Extended Life Share Class was created in April 2013 when holders of Ordinary Shares were invited to convert those shares into Extended Life Shares. The information in this fact sheet therefore relates to the Ordinary Shares up to April 2013 and to the Extended Life Shares thereafter.

2.       The HFRI Distressed/Restructuring Index reflects distressed restructuring strategies which employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings (provided by Hedge Fund Research, Inc.).

3.       The BAIF-Distressed Securities Hedge Funds Domiciled Globally Index is one of Bloomberg's Active Indices for Funds (BAIF) used to measure a fund's performance against its peers. This index represents distressed securities hedge funds, domiciled globally.

4.       Bloomberg article, October 2013.

5.       Ernst & Young, 2013.

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited                               [phone]

Damian Holland

Anji Stewart

Financial Dynamics                                                            [phone]

Neil Doyle            

Ed Berry

Laura Ewart

An accompanying factsheet on the information provided above can be found on the Company's website www.nbddif.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

PFUDGBDBRBGBGXR