Portfolio Update

RNS Number : 3376Y

NB Distressed Debt Invest. Fd. Ltd

21 February 2013

 

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 fourth quarter and to see continuing growth in the first quarter to-date. In the fourth quarter we exited an additional energy deal which contributed to an increase in our NAV. In December we took advantage of year-end selling pressure to significantly increase cash deployment. 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 31 December 2012, over 91%¹ of NBDDIF's NAV was invested in distressed assets, with investments in 48 companies diversified across 16 industries, which represents a peak level of deployment in the life of the fund. NBDDIF's NAV increased 11.3% in 2012, to $1.0766 from $0.9672 per share, and we believe that our performance year-to-date compares favourably with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index² which returned 10.2% in 2012. In the fourth quarter, NAV increased 3.7%, primarily due to the mark-ups of several positions which reached key restructuring milestones or made progress post-reorganization. December was a particularly busy year-end in the distressed market. We added four new names to the portfolio and were able to add incrementally to select existing positions. In the fourth quarter, we also saw our eleventh exit since inception: we were part of an investor group which sold a gas-fired power generation plant to a Fortune 500 company.

Market Environment & Proposed Investment Period Extension

We believe that the distressed debt market is providing a longer-term opportunity than we originally expected. Over $1.9 trillion³ of non-performing loans remain on banks' balance sheets and banks have announced over $2.0 trillion⁴ of asset reduction targets. Non-performing loan portfolios are expensive from a capital perspective, and Basel III minimum capital standards are increasing going forward⁵. Whilst country-by-country factors relating to the speed of disposal of loans may vary, problem assets still need to come off bank balance sheets, which we believe would lead us to opportunities that are of interest in the medium-term.

The Board of NBDDIF, after discussions with the Investment Manager, believes that opportunities in the distressed market remain compelling and that an extension to the investment period should enable the company to access attractive investment opportunities after the current investment period expires. On 23 January 2013, the Board announced, following consultation with its major shareholders, its intention to propose an extension to the company's investment period (the "Proposed Extension".) The existing investment period is due to expire in June 2013 and it is intended that a proposal be made to ordinary shareholders in the company ("Shareholders") to extend the investment period by 21 months to 31 March 2015. Those investors who wish to remain invested on the basis of the current investment period will be given the opportunity to do so. Having consulted with its major shareholders, the Board is confident that a majority of the Shareholders will support the Proposed Extension. It is intended that the share class subject to the extended investment period will be subject to a new capital return policy, new discount policy and increased preferred return. For further information on these and other aspects on the Proposed Extension, please see the company's release of January 23^rd 2013. Further details of the proposal will be provided in a prospectus and circular to Shareholders expected to be issued in March 2013, with a class meeting of Shareholders expected to be held in April 2013.

Investment Exit

In the fourth quarter we had one exit, bringing our total to 11 exits since inception.

Investment Eleven: We purchased an $8.9 million equity interest of a post-reorganization power generation company which owns a combined-cycle gas turbine power plant in the Texas market. The company had previously filed from protection from creditors under Chapter 11 of the United States Bankruptcy Code, and subsequently emerged from bankruptcy protection under control of the pre-petition senior lenders. The power plant has been sold to a Fortune 500 energy company and the company is in the process of being wound down. Our investment return was comprised of a liquidating dividend of $12.4 million and the sale of our remaining equity interest of $0.4 million in the secondary market, for a total income, after expenses of $0.4m, of $3.4 million.

1.         Reflects restructuring distributions received in 2013 but booked under US GAAP rules in 2012.

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.         Source: KPMG Global Debt Sales Survey 2012.

4.         Source: IMF Stability Report, April 2012.

5.         Source: 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.

 

END

 

 

PFULLFIDFFIIFIV