Portfolio Update - Global Shares

RNS Number : 5679O

NB Distressed Debt Invest. Fd. Ltd

29 May 2015

 

NB Distressed Debt Investment Fund Limited

Portfolio Update - Global 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.

The New Global Share Class ("NBDG") was created in March 2014 and aims to capture the growing opportunity in distressed debt globally. NBDG is subject to an investment period ending on 31 March 2017, following which the assets will be placed into run-off.

The New Global Shares are one of three classes of shares in NBDDIF. The other classes are the Ordinary Share Class and the Extended Life Share Class. The Ordinary Share Class is subject to an investment period which ended on 10 June 2013 and the Extended Life Share Class is subject to an investment period which ended on 31 March 2015. Separate factsheets are produced for those classes.

Summary

In the first quarter of 2015, we continued to deploy capital in new and existing positions. We exited three positions which contributed positively to NAV. We see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments.

Portfolio

As at 31 March 2015, we had deployed approximately 78.4% of NBDG's capital. NBDG had investments in 27 names across 12 industries. The largest sector concentrations were in lodging & casinos, utilities, shipping and surface transportation. In the first quarter we added new positions in the oil & gas and air transportation sectors.  We also added incremental exposure to existing names in the shipping, oil & gas, power, casino and metals sectors.

NBDG's NAV per share decreased 1.1% in the first quarter of 2015, to GBP 87.66 from GBP 88.60 per share. The primary drivers of NBDG's NAV decrease were secondary market price declines of existing positions. We believe that performance comparison versus other distressed managers is indicated by the HFRI Distressed/Restructuring Index¹ which returned 0.8% in the quarter. During the first quarter of 2015 we saw three exits, which all added positively to NAV and are described in detail below. We are working towards key restructuring milestones on our existing investments, which we anticipate can ultimately result in profitable exits.

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Market Update²

We continue to believe the pipeline of distressed debt opportunities in real estate, transportation and energy debt is compelling. EU banks in particular increased their disposal of European and U.S. loans and assets to €91 billion in 2014, versus €64 billion in 2013, €46 billion in 2012, €36 billion in 2011 and €11 billion in 2010. However, over €1 trillion of non-performing loans remain on EU banks' balance sheets. We believe that the European regulatory environment may continue to facilitate further recognition and disposal of distressed loans. Additionally, the recent volatility in energy markets has presented new opportunities in the U.S.

Exits

In the first quarter we saw three exits in NBDG, our 3^rd, 4^th and 5^th exits since inception. These exits generated approximately £0.8 million of total return and gains for NBDG.

Investment 3: We purchased a £4.0 million portion of a first lien debt facility at 87.75% of par, which was secured by the operating assets of a British ferry company.   We expected that the company would either restructure its debt or would refinance its existing debt structure.  In the case of a debt restructuring and conversion into post-reorganization securities, we believed that our cost basis represented a significant valuation discount versus comparable assets.  Ultimately, the company was sold and our debt paid off at par plus accrued interest.  Total return from this investment was £0.6 million generating an IRR of 24%.

Investment 4: We purchased $1.0 million face value of senior notes at 87.60% of par of a company with oil & gas assets.  We believed that the company would be able to refinance its capital structure through a combination of asset sales and capital markets activities.  Subsequent to our purchase, the secondary price of the senior notes increased significantly and we exited via the secondary market.  Total return from this investment was £0.1 million generating an IRR of 112%.

Investment 5: We purchased $0.6 million face value of senior notes at 90.25% of par of a company with oil & gas assets.  We believed that the company would be able to refinance its capital structure through a combination of asset sales and capital markets activities.  Subsequent to our purchase, the secondary price of the senior notes increased significantly and we exited via the secondary market.  Total return from this investment was £41,000 generating an IRR of 90%.

Data as at March 31, 2015 unless otherwise noted. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDG.

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.   Source:  Data from PWC dated January 2015.

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited                               [phone]

Damian Holland

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.

 

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