Portfolio Update - Ordinary Shares

RNS Number : 3508X

NB Distressed Debt Invest. Fd. Ltd

19 November 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 non-investment grade credit teams in the industry.

On 10 June 2013, the Investment Period of the NBDD Ordinary Share Class ("NBDD") 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 distribution having been made in the first quarter of 2014, the second in the second quarter of 2014 and the third in the third quarter of 2014.  A fourth distribution is expected to be made in the fourth quarter of 2014.

The Ordinary Shares are one of three classes of shares in NBDDIF. The other classes are the Extended Life Share Class and the New Global Share Class, which both offer 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 and the new Global Share Class is subject to an investment period ending on 31 March 2017. Separate factsheets are produced for those share classes.

Summary

We were gratified to see the positive NAV movement achieved in the first nine months of 2014. NBDDIF expects to make a fourth capital distribution to shareholders in the fourth quarter of 2014 in respect of NBDD. 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 September 2014, 90.3% of the NBDD NAV was invested in distressed assets. The NBDD NAV per share increased 4.2% in the first nine months of 2014, to $1.2707 from $1.2189 per share. During the first nine months of 2014, NBDD's NAV was reduced by an accrual for performance fees of $0.0116 per share, or approximately 0.9% of NBDD's NAV. As of 30 September 2014, the total accrual for performance fees, including amounts previously accrued through 31 December 2013, was $0.0289 per share. We believe that performance comparison versus other distressed debt managers is indicated by the HFRI Distressed/Restructuring Index¹ which returned 2.5% in the first nine months of 2014.

In the third quarter of 2014, NBDD's NAV per share increased 1.3%, primarily due to the reversal of an accrual for performance fees offset by mark-to-market declines on existing positions. In the third quarter, NBDD experienced the markdown of secured notes of a portfolio company which detracted 1.3% from NAV.  This portfolio company reported that it had become the subject of an investigation relating to potential regulatory and criminal violations, resulting in a high degree of uncertainty in the restructuring process and leading to the mark-to-market loss in the quarter. During the quarter we saw our 24th, 25th and 26th exits since inception, which are described in detail below.

Capital Return

On 10 November 2014, the Board of the Company resolved to return $11.0 million (equivalent to approximately $0.1316 per share) to holders of NBDD shares by way of a compulsory partial redemption of NBDD shares. The current return comprises all cash available to NBDD, save for amounts deemed to be required for existing positions and for working capital requirements. This distribution is expected to be made in the fourth quarter of 2014.

Exits

In the third quarter we had three exits, bringing our total realisations to 26 since inception. These exits generated $4.8 million of total income and gains for NBDD.

Investment 24: We purchased $7.4 million face value of senior notes at 71.3% of par, issued by an independent power producer.  At the time of purchase, the company was burdened by an overlevered balance sheet and near-term debt maturities.  Our investment thesis was that the debt would likely be restructured into new securities in order to avoid a default, or that in the event of default we would own equity in the assets at an attractive valuation relative to comparable assets.  The company ultimately filed Chapter 11 bankruptcy and sold substantially all of its assets to a Fortune 500 energy company.  Our recovery on the notes came from the proceeds of the sale, interest payments pre-bankruptcy filing and the sale of remaining claims in the secondary market.  Total income from this investment was $1.3 million.

Investment 25: We purchased $7.3 million of defaulted senior secured debt at 80.0% of par secured by a professional sports team, arena and related real estate.  At the time of purchase we believed that the value of the collateral package was well in excess of the face amount of the company's debt plus accrued and unpaid interest.  We also believed that the team and arena would likely be sold to a new owner who would refinance our debt, or that we and other holders would assume an ownership position at a discounted valuation versus comparable assets.  Ultimately, the assets were sold to a new ownership group who paid past due interest and refinanced the secured debt.  Total income from this investment was $2.1 million. 

Investment 26: We purchased $3.3 million face value of senior secured notes at 34.5% of par, secured by a continuing care retirement community located in the southern U.S.  After construction was completed, the facility did not generate sufficient cash flows to service its debt and the issuer defaulted and filed Chapter 11 bankruptcy.  We believed that the value of the property was significantly in excess of our purchase price and that we would either restructure the debt or ultimately own equity in the property.  The bondholders and the company subsequently completed a debt restructuring which allowed the company to emerge from bankruptcy and ultimately refinance its restructured securities.  Total income from this investment was $1.4 million.

Data as at September 30, 2014. 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.).

-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.

 

END

 

 

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