Portfolio Update - Ordinary Shares

RNS Number : 5759X

NB Distressed Debt Invest. Fd. Ltd

10 May 2016

 

10 May 2016

NB Distressed Debt Investment Fund Limited

Portfolio Update - Ordinary Shares

NB Distressed Debt Investment Fund Limited ("NBDDIF") is a Guernsey-incorporated closed-ended investment company 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 the harvest period following the expiry of the investment period. Eight distributions totaling in excess of $93 million were made in 2014 and 2015 and the distribution described below increased this total to approximately $100 million or 81% of investors' original capital.

The Ordinary Share Class is one of three classes of shares in NBDDIF. The others 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 was subject to an investment period which ended 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

In the first quarter, challenging market conditions continued as lack of liquidity and potential sellers put pressure on pricing. We believe the fundamental value of our positions will be realised over time.

During the quarter, capital markets experienced significant volatility as commodity prices rebounded in the second half of the quarter to recoup the losses at the beginning of the period. Without a bid, credit and equity markets experienced a steep decline during January and early February. Mid-February was the low point for most markets after which the equity and liquid credit markets began to recover. However, the markets for distressed credit and post-reorganisation equities continue to experience a lack of liquidity as funds remain cautious and investment banks continue to pull back their proprietary investing activities due to regulatory changes.

To date, NBDD has returned 81% of original capital to investors, including $7.0 million distributed in February 2016. In April, the Board of Directors approved a $4.5 million distribution, bringing total approved cash distributions to date to 84% of original capital. NBDD has 26 remaining investments in various stages of restructuring. We continue to see upside potential in the remaining investments, many of which have suffered from mark-to-market write-downs. Given a lack of liquidity in our markets, we believe our portfolio is fundamentally undervalued and we continue to focus on returning capital to investors while ensuring that we maximise the value of all assets in the portfolio. During the first quarter, there were positive and negative developments in certain assets, which are described in more detail below.

Portfolio

As of 31 March 2016, 93.7% of NBDDIF Ordinary Share NAV ("NBDD's NAV") was invested in distressed assets. Unrestricted cash ended the quarter at 6.3% of NAV.

NBDD's NAV per share decreased 0.7% in the first quarter, to $1.1103 from $1.1184 (adjusted 31/12/15 NAV). Reduced liquidity in private investments took its toll on the portfolio during the quarter as the largest mark-to-market declines were on private equity investments.

We believe that performance versus other distressed debt managers can be indicated by relevant distressed market indices including the HFRI Distressed/Restructuring Index², which declined 1.3% in the first quarter, and the performance of defaulted loans in the S&P/LSTA Index³, which declined 5.7% in the first quarter. An indicator of the disruption in lower quality credit markets is that the Credit Suisse⁴ and BofA Merrill Lynch⁵ U.S. distressed high yield indices returned (7.1%) and 3.4%, respectively, during the first quarter.

The primary driver of NBDD's decline in NAV was mark-to-market loss in private equity investments in building and development investment and utility investment, partially mitigated by unrealised gains in a container/packaging investment and utility investments.

Certain notable corporate events involving NBDD's existing investments during the quarter are highlighted below⁶:

·      As previously reported, an east coast power plant announced that it reached an agreement to sell its core asset. The sale closed in the first quarter and we received the first payment of sales proceeds. We expect to receive the remaining proceeds in February 2017 from escrow releases.

·      An equity investment in a shipping company completed a balance sheet recapitalisation whereby existing shareholders provided a new second lien facility to give the company incremental liquidity. We continue to manage actively the investments in our portfolio in order to generate profitable realisations through significant events (asset sales, legal outcomes, foreclosures, etc.), which to a certain extent, are not dependent on the liquidity of the credit markets, and return ultimately capital to investors through consistent distributions.

We continue to manage actively the investments in our portfolio in order to generate profitable realisations through significant events (asset sales, legal outcomes, foreclosures, etc.), which to a certain extent, are not dependent on the liquidity of the credit markets, and return ultimately capital to investors through consistent distributions.

Exits

There were no exits in the quarter.

Capital Return

During the quarter, $7.0 million was distributed to shareholders bringing total cash distributed to 81% of original capital. Post quarter end, the Board of Directors approved a capital distribution of $4,500,000 to investors. This brings total capital approved for distribution to investors to $104.9 million or 84% of original capital.

Factsheet

An accompanying factsheet on the information provided above can be found here http://www.rns-pdf.londonstockexchange.com/rns/5759X_-2016-5-6.pdf or 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.

-ENDS-

For further information please contact:

Neustria Partners                                                         [phone]

Charles Gorman

Rob Bailhache

Nick Henderson

_____________________________________________________

Data as at 31 March 2016. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDD.

1. Source: Bloomberg, except where otherwise stated.

2. 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.).

3. This refers to the D-rated cohort of the S&P /LSTA Leveraged Loan Index indicating defaulted loans. The S&P /LSTA Leveraged Loan Index is designed to mirror the investible universe of the $US-denominated leveraged loan market.

4. 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).

5. 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).

6. Notable corporate events may or may not result in an increase or a decrease in the value of an NBDD investment or a change in NBDD's NAV per share. Please note an investment may experience a change in value (positive or negative) during the quarter whether or not it was subject to a notable corporate event. Not all events involving existing investments are disclosed above. In addition, certain corporate events may not have been disclosed due to confidentiality obligations.

 

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