Portfolio Update - Ordinary Shares

RNS Number : 5645P

NB Distressed Debt Invest. Fd. Ltd

20 August 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 and the second in the second quarter of 2014. A third distribution is expected to be made in the third 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. A separate factsheet is produced for those share classes.

Summary

We were gratified to see the positive NAV movement achieved in the first half of 2014. NBDDIF expects to make a third capital distribution to shareholders in the third 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 June 2014, 98.0% of NBDDIF Ordinary Share NAV ("NBDD's NAV") was invested in distressed assets.  NBDD's NAV per share increased 2.9% in the first half of 2014, to $1.2538 from $1.2189 per share. During the first half of 2014, NBDD's NAV was reduced by an accrual for performance fees of $0.0378 per share, or approximately 3.0% of NBDD's NAV.  As of 30 June 2014, the total accrual for performance fees, including amounts previously accrued through 31 December 2013 was $0.0540 per share. We believe that performance comparison versus other distressed debt managers is indicated by the HFRI Distressed/Restructuring Index¹ which returned 5.5% in the first half of 2014. 

In the second quarter of 2014, NBDD's NAV per share increased 1.4%, primarily due to mark-to-market gains on positions which reached key restructuring milestones.  During the quarter we saw our 21st, 22nd and 23rd exits since inception, which are described in detail below.

Capital Return

On 1 August 2014, the Board of the Company resolved to return $7.0 million (equivalent to approximately $0.0785 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 third quarter of 2014.

Exits

In the second quarter we had three exits, bringing our total to 23 since inception.  These exits generated $2.3 million of total income and gains for NBDD.

Investment 21: We purchased $5.9 million face value of secured term loans at 86.9% of par, issued by a media company with businesses including broadcast radio and outdoor advertising.  The term loans were secured by substantially all of the assets of the company, including broadcasting licenses and equipment.  We believed that the debt would be refinanced, or that in the event of default, we would ultimately own the assets at an attractive valuation.  The company subsequently engaged in a series of transactions which termed out debt maturities and enhanced the economics of its bank debt.  As a result of these actions and positive operating performance, the prices of the company's debt moved up and we exited the position in the secondary market.  Total income from this investment was $1.4 million.

Investment 22: We purchased $1.5 million of defaulted senior secured debt at 85% of par, secured by an office building in Belgium.  Our intention was to purchase additional pieces of debt and engage in the restructuring process.  We believed that even in a downside valuation scenario the sale of the collateral would cover our purchase cost of the debt.  However, we were unable to purchase additional debt and the original lenders sold the collateral at the lower end of our valuation.  As a result, we received our original capital back from sale proceeds and other interim payments and generated no material income from the investment.

Investment 23: We purchased $3.5 million of post-reorganization equity of a power generation company which owned three power plants located in the northeast U.S.  Our purchase price valued the plants at approximately $520/kW, which we believed represented a discount versus the likely proceeds of a sale of the plants.  Subsequently the company's assets were sold to a strategic buyer for a value of approximately $620/kW.  We exited the investment through a combination of cash distributions and secondary sales of shares. Total income from the investment was $0.9 million.

Market Update²

We continue to experience an improving environment for distressed debt in our sectors of interest. We believe 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 increased their disposal of European and U.S. loans and assets to €64 billion in 2013, versus €46 billion in 2012, €36 billion in 2011 and €11 billion in 2010. However, over €1 trillion of non-performing loans remain on EU bank's balance sheets. The ECB is scheduled to assume supervisory authority for all euro-area lenders later in 2014. We believe that an ECB-sponsored harmonization of NPL definitions 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.

Data as at June 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.).

2.         Source:  Data from PWC Market Update Reports dated March 2014 and July 2014.

-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.

 

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