Portfolio Update

RNS Number : 7756C

NB Distressed Debt Invest. Fd. Ltd

08 May 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 are pleased with the composition of the portfolio and its resilience in the face of market conditions. Given the volatility of markets in 2011, we were gratified to preserve our investors' capital, whilst at the same time deploying the portfolio in attractive debt backed by hard assets and achieving five profitable exits. In the first quarter of 2012 we exited two 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. We were further gratified by the successful continuation vote held in January. All votes cast voted in favour of the continuation of the company, as envisaged at the time of launch. We appreciate the positive demonstration of support from our investors.

As at 31 March 2012, approximately 82% of NBDDIF's NAV was invested in distressed assets. NBDDIF had investments in 45 companies diversified across 14 industries. We are actively looking to replace assets harvested in the first quarter and have letters of intent (LOIs) outstanding for additional deals. We are also actively bidding on additional distressed loans in the secondary market at prices which we believe will generate attractive risk-adjusted returns. NBDDIF's NAV increased 2.8% in the first quarter, to $0.9944 from $0.9672 per share. This increase primarily reflects mark-ups on various investments and gains on investment exits. We have provided additional detail on the ten largest portfolio positions on our quarterly factsheet.

Market Environment

The Investment Manager believes that the fundamentals for distressed investing remain favourable. As has been widely reported, the European sovereign debt crisis and related issues have impacted risk appetites globally. The current amount of non-performing and non-core portfolios in the US is estimated to be between $300 - $350 billion¹. On top of this, market observers expect an additional $100 billion potential market expansion, as a result of impending regulatory changes, that could result in financial institutions divesting assets. Issuers with marginal credit ratings face a shortage of capital availability, as shown by the high rates for CCC loan issuers (greater than Libor + 15%)². In the first quarter we saw a slowdown in bank asset sales, in the wake of substantial government actions to stabilize the global financial system, such as LTROs. However, we believe that the supply of distressed assets from banks and a relative lack of capital for lower-rated companies will continue to result in opportunities for investing in distressed loans.

Investment Exits

In the first quarter we had two exits, bringing our total to seven exits since inception. By industry, one was in a Utilities company, the other in a Telecommunications company.

Investment Six: We purchased an approximately US $22 million equity interest of a post-reorganization power generation company in the process of being liquidated. At the time of our investment the company owned two natural gas-fired power plants in the southeastern United States. Net of distributable cash our entry price valued the power plants at approximately $150 per kW. Subsequently the company announced that the plants would be sold to a local utility company for a valuation of approximately $400 per kW. Our investment return was comprised of a liquidating dividend of $9.6m, and the sale of our remaining equity interest of $16.2m in the secondary market, for a total income of $3.8m.

Investment Seven: We purchased an investment in a 1st lien term loan at a cost of US $7.9 million, which represented a 16% discount to par value. The term loan was secured by telecommunications and broadcasting infrastructure in northwest Europe. Our investment thesis was that the debt would likely be refinanced or in the event of default we would end up with control of the assets at an attractive valuation relative to comparable assets. The company did not subsequently default, and due to market conditions a near-term refinancing looked unlikely. We sold our position in the secondary market at 90% of par for $8.6m sales proceeds, resulting in total income (including earned interest) of $1.0m.

Please see the factsheet for more information on these two exits.

Source: BNP Paribas and Bloomberg. Data as at 31 March 2012. Past performance is not indicative of future returns.

1. Source: KPMG, Global Debt Sales, Portfolio Solutions Group, September 2011.

2. Source: S&P/LSTA Leveraged Loan Index.

-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.

 

END

 

 

PFULLFLFERISIIF