Portfolio Update

RNS Number : 7074Q

NB Distressed Debt Invest. Fd. Ltd

09 November 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 were gratified to see the positive NAV momentum achieved in the third quarter, which we expect to see continue into the fourth quarter. We exited two additional deals, both of which contributed to an increase in our NAV. We continue to see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments. During the quarter we reached key restructuring milestones on multiple investments, which we anticipate will ultimately result in profitable exits.

Portfolio

As at 30 September 2012, approximately 82% of NBDDIF's NAV was invested in distressed assets, with investments in 45 companies diversified across 14 industries. We are actively looking to replace assets harvested in the first three quarters of the year, and are bidding on additional distressed loans. NBDDIF's NAV increased 7.4% in the first nine months of 2012, to $1.0384 from $0.9672 per share. We believe our performance year-to-date compares favorably with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index¹ which has returned 5.7% in the same period. In the third quarter, NAV increased 2.3%, primarily due to the mark-ups of several positions which reached key restructuring milestones or made progress post-reorganisation. During the quarter, we saw our ninth and tenth exits since inception, as we sold the post-reorganisation securities of a shopping mall REIT and a telecommunications company. We also added incrementally to existing names and initiated positions in the senior debt of a power generation plant and the post-reorganisation claims of a container company. As with our other investments, we believe we are creating a valuation basis in the companies, at a discount to comparable non-distressed investments.

Market Environment

The distressed debt market is proving a longer-term opportunity than we originally expected. 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 $1.9 trillion² of non-performing loans remain on banks' balance sheets and banks have announced over $2.0 trillion of asset reduction targets³. Non-performing loan portfolios are expensive from a capital perspective, and with the introduction of Basel III, the minimum capital standards are going to increase in the future. Whilst country-by-country factors relating to their speed of disposal may vary, problem assets still need to come off bank balance sheets, leading us to opportunities that are of interest in the medium-term. Consequently, we expect that year-end selling pressure from banks' balance sheets over the next few years, should result in continued compelling investment opportunities. We continue to be confident about the current and future environment for distressed debt investing.

Investment Exits

In the third quarter we had two exits, bringing our total to ten exits since inception.
Investment Nine: We purchased $5 million face value of a 1st lien term loan at a price of 66% of par, secured by incumbent network telecommunications assets in the Northeast United States. The company had filed for bankruptcy due to excessive debt incurred to make an acquisition. We believed that our entry point represented a discounted valuation versus comparable companies. The company subsequently emerged from bankruptcy with a restructured balance sheet. We exited the post-reorganisation debt and equity securities in the secondary market. Total income from this investment was $0.5 million.

Investment Ten: We purchased $26.6 million face value of 1st lien debt at a price of 59% of par, secured by shopping mall retail real estate in Australia and the United States. We believed that the loan price undervalued the company's assets and that in a sale or restructuring we would recover significantly more than our purchase price. The company subsequently divested its US assets, which repaid a portion of the 1st lien debt. The remainder of our debt was converted into equity which we sold in the secondary market. Total income from this investment was $3.3 million. Please see overleaf for more information on these two exits.

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. KPMG Global Debt Sales Survey 2012.

3. Source: IMF Stability Report, April 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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