Portfolio Update

RNS Number : 3529K

NB Distressed Debt Invest. Fd. Ltd

21 August 2012

 



NB Distressed Debt Investment Fund Limited

Portfolio Update

NB Distressed Debt Investment Fund Ltd ("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.

We continue to see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments. In the first half of 2012 we exited three deals, contributing to an increase in our NAV. In the second quarter, we reached key restructuring milestones on multiple investments which we anticipate will ultimately result in profitable exits.

Portfolio

As at 30 June 2012, approximately 82% of NBDDIF's NAV was invested in distressed assets, with investments in 44 companies diversified across 13 industries. We are actively looking to replace assets harvested in the first half of the year, and are bidding on additional distressed loans at prices which we believe have potential to positively contribute to results. NBDDIF's NAV increased 5.0% during the first half of 2012, to $1.0153 from $0.9672 per share. In the second quarter, NAV increased 2.1%, primarily due to the mark-ups of several positions which reached key restructuring milestones. These gains were offset by the markdown of a position which detracted 2.2%. Negative events in the restructuring of this company resulted in a mark-to-market loss, although in our view we expect the value of the ultimate realisation to likely be higher than the current mark.

In the second quarter we saw our eighth exit since inception: we received par value plus accrued interest for the 1^st lien debt of a plastic film manufacturing company, details of which may be found below. We also achieved a key restructuring milestone on three loans collateralised by multifamily residential properties, representing over 9% of the portfolio. By taking title to the properties through subsidiary entities NBDDIF is now a co-owner (rather than a creditor) and can potentially monetise the investments at levels higher than the acquisition cost. Additionally, a plan of reorganisation we sponsored for a portfolio healthcare company received creditor approval and we anticipate receiving the restructured debt in the second half of 2012. We also executed a debt restructuring proposal for one of our power generation investments, which allowed us to monetise a portion of our debt holding above the acquisition price. These examples demonstrate how we are unlocking value we believe to be embedded in the portfolio.

In 2012, we have seen a slowdown in bank asset sales in the wake of the European sovereign debt crisis and government actions to stabilise the financial system. However, over $1.8 trillion¹ of nonperforming loans remain on banks' balance sheets and need to be addressed. By necessity, banks continue to sell distressed loans which will likely accelerate from the current slower-than-expected pace. In the second quarter, we added incrementally to existing names and initiated a position in a new multifamily residential opportunity. Similar to other multifamily residential investments in the portfolio, we believe we are creating a valuation basis at a discount to comparable non-distressed investments. We believe these investments will provide us with the opportunity to participate in a nascent recovery in the US real estate market and we are also actively assessing other promising US real estate related investments.

Investment Exits

Exit Eight: We purchased approximately US $13.4 million face value of a 1^st lien term loan at 84.45%, secured by plastic film manufacturing assets primarily located in Western Europe and North America. Our investment thesis was that the debt would either be refinanced or that in the event of default we would end up in control of the assets at an attractive valuation relative to comparable companies. Subsequent to our purchase, the company required a waiver in order to avoid violating debt covenants. In order to avoid a default and debt restructuring, the company's 2^nd lien lenders secured sufficient capital to refinance the 1^st lien debt in full. Total income from this investment (including earned interest) was approximately $2.6 million.Please see overleaf for more information on this exit and additional detail on the ten largest portfolio positions.

Please see the factsheet for more information.

1.     KPMG Global Debt Sales Survey 2012.

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited                               [phone]

Damian Holland

Anji Stewart

Financial Dynamics                                                            [phone]

Neil Doyle            

Ed Berry

Laura Pope

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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