Interim Management Statement

RNS Number : 9111R

NB Global Floating Rate Income Fund

11 November 2011

 



NB GLOBAL FLOATING RATE INCOME FUND LIMITED

INTERIM MANAGEMENT STATEMENT

NB Global Floating Rate Income Fund Limited (the "Company"), is publishing this Interim Management Statement in accordance with DTR 4.3 of the FSA Handbook.

This interim management statement has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purpose.

This interim management statement relates to the period from listing on 20 April 2011  to 31 October 2011, and contains information that covers this period.

Manager Review

Following the successful fundraising of $507 million in April 2011, admission and listing of the shares took place on April 20, 2011. As at July 22, 2011, the Company had fully invested its net assets, with 173 investments across 136 issuers. The invested portion of the portfolio was highly diversified, with investments across 31 industries, with no industry representing over 13% of net assets and in terms of currency, the split was approximately 82% US Dollar, 11% Euro and 6% Sterling. The Company had a gross yield of approximately 6%.

Market Environment

For the month of July, the S&P/LSTA Index returned 0.15% after losing 0.37% in June. In Europe the S&P ELLI posted a negative 0.23% return in July, up from a negative 1.80% in June.

US loan market technicals continued to be less robust. Retail inflows to US loan mutual funds dropped to $1.2 billion in July, an 11-month low. Fortunately, arrangers pulled back supply resulting in a six-month low of $13.7 billion of new issue coming to market versus a monthly average of $25.7 billion in the first half of 2011. The retail inflows combined with $14.5 billion of cash returned to investors via repayments enabled the new issues to clear in an orderly fashion. For the deals that did clear the market, they did so at a seven-month high of 6.43%, up from 5.75% in June.

In August the S&P/LSTA Index experienced a 4.4% loss. The loss in August was the fourth-largest monthly decline on record since the S&P/LSTA Index commenced in 1997, and it was the largest outside of the three months following the bankruptcy of Lehman Brothers. In Europe, for August the ELLI index returned a 2.8% loss. 

The sell-off in loans began as investors exited risk assets due to macro concerns, including (i) a reduction in global growth expectations, (ii) the escalation of the Euro-Zone sovereign debt crisis and (iii) the contentious US debt ceiling debate and the subsequent downgrade of the US credit rating.  These fundamental concerns were exacerbated in the US loan market by a sudden and significant shift in loan technical conditions.  Retail mutual funds experienced $5.5 billion worth of outflows during August, which snapped a streak of 55 consecutive weeks of inflows and began to reverse some of the $26 billion worth of retail mutual fund inflows year to date.  These outflows forced managers to sell loans into a risk adverse market where liquidity was limited.

The US Loan market stabilised in September, ending the month with a positive return of 0.43% but the market declined again in Europe, falling 1.95%. Improving technical conditions and a broader rally in the capital markets lifted the US Loan market in October, with the S&P/LSTA Leveraged Loan Index hitting a 22-month high of 2.89%. The S&P/LSTA Leveraged Loan 100 Index, which represents the more liquid part of the market (and is where the Fund's investments are concentrated), generated a return of 4.35% for October, taking the year to date figure to 1.28%. In Europe, the S&P ELLI Index also reversed, as the index regained ground in October returning a positive return.

We continue to believe the fundamentals of the underlying companies in our portfolio remain strong and the loan market is offering compelling opportunities at this time. Current spreads imply a default rate that is significantly higher than what we, and many non-investment grade strategists, expect to occur. Our expectation of low default rates over the next 24 months remains intact despite the recent negative headlines and their adverse impact on performance; going forward we expect to see capital values increase.

Investment Pipeline

In the US, the forward calendar stood at $9.7 billion at the end of October - a nine-month low and $4.0bn down on September. The calendar is unlikely to grow substantially over the remainder of the year, due to two main factors: firstly, arrangers are continuing to keep new underwriting mandates to a minimum whilst global macro issues remain unresolved; and secondly, there is a traditional slow-down in the loans market as we enter the holiday season. Despite this, we are seeing new issues that continue to pay yields within our target range, and so continue to add companies that meet our investment criteria. As of October 28th, in Europe the forward calendar stood at a modest €590m. We do not expect further issuance in Europe through to the year-end as arrangers have a number of protracted syndications in the market that need to clear, prior to new business being underwritten.

Market uncertainty remains less acute in the US than in Europe, and it therefore stands as the primary focus of our investments at present. Given the lower primary volume outlook we expect the majority of our activity through the final two months of the year to be concentrated in the secondary market, where yields still remain attractive, after the sell-off in August.

Material Events and Transactions

The Initial Public Offering of the Company took place on 20 April 2011, raising gross proceeds of approximately $507 million.

On 23 May 2011, the Company announced its block listing application made to the UK Listing Authority for 22,343,944 Sterling Shares and 13,593,954 US Dollar Shares (together "Shares") to be admitted to the Official List under a share block listing facility. An application was also been made for the Shares to be admitted to the main market for listed securities of the London Stock Exchange plc.

It was also been announced that the shares may be issued under the block listing facility for general corporate purposes subject to guidelines laid down by the Board and in accordance with the Company's articles of incorporation.  Any Shares issued pursuant to the block listing facility will, when issued, rank pari passu with the existing shares of the Company in issue.

On 5 October 2011, the Company raised additional capital by way of issuing U.S. Dollars C Shares and Sterling C Shares, raising total gross proceeds of approximately US$187 million.

The U.S. Dollar C Shares and Sterling C Shares will convert into U.S. Dollar Shares and Sterling Shares respectively on the basis of conversion ratios, which will be calculated once at least 90 per cent. of the assets attributable to the relevant C share class have been invested or committed to be invested, which the Directors anticipate will occur by no later than 5 October 2012.

Dividends

On 12 October 2011, the Board of the Company declared its maiden quarterly dividend of $0.01486 per Dollar ordinary share and £0.01486 per Sterling ordinary share, covering the period 20 April 2011 to 30 September 2011, payable on 9 December 2011 to shareholders on the register as at close of business on 21 October 2011.

The Company intends to pay dividends to Shareholders equal to the cash income it receives less its running costs paid in that year, subject to the solvency test prescribed by Guernsey law.

The Company intends to offer a scrip dividend alternative for this distribution to those investors who wish to receive additional ordinary shares in lieu of a cash payment. 

There is no dividend payable to C Shareholders at this stage.

Report and Accounts

The Company's first Annual Report and Accounts will be for the period ended 31 December 2011 and will be made public within four months following the period end. 

Financial Highlights

		31 October 2011	30 September 2011	30 June 2011
Ordinary Share
- Sterling (£)		0.9501XD	0.9278	0.9744
- US Dollars ($)		0.9522XD	0.9297	0.9734
C Shares
- Sterling (£)		0.9905	n/a	n/a
- US Dollars ($)		0.9908	n/a	n/a

Background Information

The Company is a non-cellular company limited by shares incorporated in Guernsey and has been declared by the Guernsey Financial Services Commission to be a registered closed-ended collective investment scheme. The Company is managed by Neuberger Berman Europe Limited, which has delegated certain of its responsibilities and functions to the sub-investment manager, Neuberger Berman Fixed Income LLC, both of which are indirect wholly owned subsidiaries of Neuberger Berman Group LLC.

The Company's share capital consists of ordinary shares and C Shares denominated in U.S. Dollar and Sterling.

Investment objective, policy and strategy

The Company's investment objective is to provide its shareholders with regular dividends, at levels that are sustainable, whilst growing the capital value of its investment portfolio over the long term.

To pursue its investment objective, the Company invests mainly in floating rate senior secured loans issued in U.S. Dollars, Sterling, and Euros by North American and European Union corporations, partnerships and other business issuers.

The financial information from incorporation, 10 March 2011 to 30 June 2011 has been audited however the information from 1 July 2011 to 31 October 2011, contained within this Interim Management Statement, has not been audited.

By order of the Board

BNP Paribas Fund Services (Guernsey) Limited, for and on behalf of

NB Global Floating Rate Income Fund Limited

as Company Secretary

This document is intended only for the person to whom it has been delivered.  No part of this document may be reproduced in any manner without the written permission of NB Global Floating Rate Income Fund Limited ("NBGFRIF").  The securities described in this document may not be eligible for sale in some states or countries and it may not be suitable for all types of investors. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.

This document is not intended to be an investment advertisement or sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the securities described herein.  This document was prepared using the financial information available to NBGFRIF as at the date of this document.  This information is believed to be accurate but has not been audited by a third party.  This document describes past performance, which may not be indicative of future results. NBGFRIF does not accept any liability for actions taken on the basis of the information provided in this document.

Neuberger Berman is a registered trademark. © 2011 Neuberger Berman.

 

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