Portfolio Update - Ordinary Shares

RNS Number : 9888X

NB Distressed Debt Invest. Fd. Ltd

20 January 2014

 



NB Distressed Debt Investment Fund Limited

Portfolio Update - Ordinary Shares

Portfolio

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.

On 10 June 2013, the Investment Period of the NBDD 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 to be made in the first quarter 2014.

The Ordinary Shares are one of two classes of shares in NBDDIF. The other class is the Extended Life Share Class, offering exposure to new opportunities in this asset class beyond 10 June 2013.  The Extended Life Share Class is subject to an investment period ending on 31 March 2015.  A separate factsheet is produced for that class.

Summary

We were gratified to see the positive NAV movement achieved in the fourth quarter and 2013 as a whole. In the fourth quarter, we exited three positions, which contributed to the increase in our NAV. The Company will make a capital return to NBDD shareholders in the first quarter of 2014.  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 31 December 2013, 78.1% of NBDDIF Ordinary Share NAV ("NBDD's NAV") was invested in distressed assets and 21.9% of NAV was held in cash and equivalents. The majority of cash (equivalent to 18.5% of NAV) has been allocated to fund the scheduled capital return to shareholders. NBDD's NAV per share increased 13.2% in 2013, to $1.2189 from $1.0766 per share. NAV at 31 December 2013 was reduced by an accrual for performance fees of $0.0161 per share. We believe this performance is in line with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index, which returned 13.6%¹ in 2013 and Bloomberg's BAIF-Distressed Securities benchmark, which returned 11.2%² over the same period. In the fourth quarter, NBDD's NAV per share increased 1.5%, primarily due to exits and mark-to-market gains on positions which reached key restructuring milestones or made progress post-reorganization. During the quarter, we saw our 18th, 19th and 20th exits since inception, which are described in detail below.

Capital Return

In January 2014, the Board of the Company resolved to return $28.0 million (equivalent to approximately $0.2255 per share) to holders of NBDD shares by way of a compulsory partial redemption of NBDD shares. The current return comprises (i) the total capital from investment exits from the NBDD portfolio in the period from 10 June 2013 (being the end of the investment period) through 31 December 2013 and (ii) all other cash available to the NBDD share class, save for amounts deemed to be required to meet follow-on investments that may be required for existing positions and cash for working capital requirements.

Exits

In the fourth quarter, we had three exits, bringing our total to 20 since inception. These exits generated $7.3 million of total income and gains for NBDD and included our most profitable exit to date in the life of NBDDIF (Investment 19).

Investment 18: We purchased $5.6 million face value of secured loans at 79.3% of par. The notes were secured by six hotel/casinos, including four in Las Vegas, Nevada. 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 gaming market conditions improved and a refinancing looked increasingly likely, we sold a portion of the position in the secondary market at levels higher than our purchase price. The remaining position was repaid in a refinancing of the notes in the fourth quarter of 2013. Total income from this investment was $1.6 million.

Investment 19: We purchased $7.1 million of a secured term loan facility at 62.5% of par. The term loan was secured by trucks and real estate of a transportation and logistics company. At the time of purchase, the company was over-levered and needed to restructure its debt. We believed that our position was covered by the value of the collateral in a liquidation scenario, yet provided significant upside potential in the event of a successful reorganization. Following an out-of-court restructuring, we received a mix of new debt and equity instruments. We added to our position after these instruments traded lower post-reorganization. During 2012 and 2013 the company experienced improved operational results which resulted in a substantial increase in market value across the capital structure. We exited our position in the secondary market resulting in total income from the investment of $4.5 million.

Investment 20: We purchased $25.5 million face value of defaulted secured notes at an average price of 23.2% of par. The bonds were issued by a company which owned and operated petroleum refineries across Europe. At the time of initial purchase the company was bankrupt and we believed that in liquidation the proceeds from asset sales would result in strong recoveries for bondholders. The results of the sale of a key asset of the company were below expectations, and the secondary price of the bonds decreased significantly. We purchased additional bonds at these lower levels which reduced our overall cost basis. The liquidation of the company continued and the secondary price of the bonds subsequently moved up to levels closer to our estimate of ultimate recoverable value.  We sold the position in the secondary market resulting in total income from this investment of $1.2 million.

Data as at December 31, 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDD.

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.         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.

-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

 

 

PFUQKODDABKDCDD