Portfolio Update - Extended Life Shares

RNS Number : 3343W

NB Distressed Debt Invest. Fd. Ltd

18 August 2015

 

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 non-investment grade credit teams in the industry.

On 31 March 2015, the investment period of the Extended Life Share Class ("NBDX") expired.  The assets of NBDDIF attributable to the Extended 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 Extended Life Shareholders at such times and in such amounts as determined by the Board of Directors of NBDDIF.  The first such distribution, after the expiry of the investment period, is scheduled to be made in the third quarter of 2015.  Prior to the expiry of the investment period, distributions were made to reflect capital profits only arising from the exit of any assets attributable to Extended Life Shares, with a total of approximately $38 million in distributions made in 2014 and 2015. The distribution referred to below will increase the total amount distributed to investors to approximately $55.5 million or 15% of investors original capital.

The Extended Life Shares are one of three classes of shares in NBDDIF. The other classes are the Ordinary Share Class and the New Global Share Class. The Ordinary Share Class is subject to an investment period which ended on 10 June 2013 and the Global Share Class is subject to an investment period which will end on 31 March 2017. Separate factsheets are produced for those classes.

Summary

We remain satisfied with the portfolio's performance to date. Given the volatility of the distressed debt markets in 2015 to date, we were gratified to protect our investors' capital while actively managing the restructurings in the portfolio.  We continue to see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments.

Portfolio

As at 30 June 2015, 96.6% of the NBDDIF Extended Life Share NAV ("NBDX's NAV") was invested in distressed assets.  NBDX's NAV per share decreased 3.3% in the second quarter of 2015, to $1.1369 per share from $1.1757 per share. We believe that performance comparison versus other distressed debt managers is indicated by the HFRI Distressed/Restructuring Index¹ which declined 0.3% in the second quarter.

Performance in the distressed debt market during the second quarter was challenging from a mark-to-market perspective. For example, the Credit Suisse and BAML distressed high yield indices ^2,3 declined 9.9% and 3.7%, respectively, during the second quarter. In our experience, times of market volatility and reduced liquidity can result in wider bid/ask spreads and can drive mark-to-market declines. We believe this dynamic has been intensified by a reduction in capital dedicated to market making activities by investment banks as a result of regulations brought in after the financial crisis beginning in 2008.

Despite the mark-to-market volatility, we continue to actively manage the restructurings in our portfolio in order to generate profitable realisations through significant events (asset sale, legal outcome, foreclosure, etc.). We remain positive about the investments in the portfolio and believe we can generate significant returns from current marks.

Capital Return

On 14 August 2015, the Board of the Company resolved to return $17.5 million (equivalent to approximately $0.0546 per share) after expenses to holders of NBDX shares by way of a compulsory partial redemption of NBDX shares. The current return comprises all cash available to NBDX, save for amounts deemed to be required for existing positions and for working capital requirements. This distribution is expected to be made in the third quarter of 2015.

Exits

We did not see any exits in the second quarter of 2015. We continue to actively manage our investments and restructurings with the goal of generating profitable exits for NBDX.

Data as at June 30, 2015. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDX.

1.         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.).

2.         Credit Suisse High Yield Index is designed to mirror the investible universe of the $US-denominated high yield debt market.  The distressed/default rating index includes issuers who have filed for bankruptcy protection or missed a coupon payment and the grace period has expired; Standard & Poor rating is D,CC or C and/or Moody's rating is Ca or C (provided by Credit Suisse).

3.         The BofA Merrill Lynch US Distressed High Yield Index is a subset of the BofA Merrill Lynch US High Yield Index including all securities with an option-adjusted spread greater than or equal to 1,000 basis points. The BofA Merrill Lynch US High Yield Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market (data source: Bloomberg).

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited                               + 44 303 214 9087

Joanna Pope

FTI Consulting                                                                      [phone]

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.

 

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