Interim Management Statement

RNS Number : 9594G

NB Global Floating Rate Income Fund

13 May 2014

 



NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

13 May 2014

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 Financial Conduct Authority ("FCA") 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 Financial Conduct 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 contains information that covers the period between 1 January 2014 and the date of publication of this interim management statement, unless otherwise specified.

Company Objective

The investment objective of NB Global Floating Rate Income Fund Limited (the "Company") is to provide its shareholders with regular dividends, at levels that are sustainable, whilst preserving the capital value of its investment portfolio, utilising the investment skills of Neuberger  Berman Europe Limited (the "Investment Manager") and Neuberger Berman Fixed Income LLC (the "Sub-Investment Manager").

To pursue its investment objective, the Company invests mainly in floating rate senior secured loans issued in U.S. Dollars, Sterling and Euros by primarily North American and European Union corporations, partnerships and other business issuers.  These loans are at the time of investment often non-investment grade.  The Company considers debt instruments to be non-investment grade if, at the time of investment, they are rated below the four highest categories (Aaa, Aa, A and Baa) by at least two independent credit ratings agencies or, if unrated, are deemed by the Investment Manager to be of comparable quality.

The Company's Investment Managers seek to generate this yield by investing in a global portfolio of below investment grade senior secured corporate loans with selective use of senior secured bonds, diversified by both borrower and industry. The Company is managed by three experienced Portfolio Managers backed by what the Investment Manager believes to be one of the largest and most experienced credit teams in the industry.

Market Environment

The US Loan Market, as measured by the S&P/LSTA Leveraged Loan Index, returned 1.20% in the first quarter 2014, almost entirely from income.  As the Investment Managers have witnessed over most of the past three years, lower rated credits outperformed with BBs at 0.61%, Bs at 1.20% and CCCs at 3.76%. The underperformance of BB-rated loans was primarily caused by managers continuing to look for higher yield than is typically offered in BB loans, where all-in yields are often below 3.5%. Conversely, second lien loans saw very strong performance in the quarter with a return of 2.32%.

In Europe the S&P European Leveraged Loan Index (ELLI) had a first quarter return of 0.52% with this return being affected by a number of pre-crisis transactions, none of which are held in the portfolio, suffering dramatic price drops. These were at the lower end of the rating spectrum as evidenced by the fact that the BB and single B segment of the Index returned 0.98% and 0.58% respectively.  

Loans underperformed other fixed income asset classes in the first quarter, as an unexpected decline in treasury yields, from ~3.00% to ~2.75%, favoured longer duration asset classes including Treasuries (+3.38%), High Grade (+2.97%) and High Yield (+3.00%).

US institutional loan volume in Q1 was down ~15% from Q1 2013, at $127 billion vs. $149 billion. However, 2013 was a record year for issuance and this lower level is still the second best Q1 on record. The primary driver of the reduced volume was a decline in refinancing activity as many companies have already pushed out maturities and/or refinanced into lower coupon tranches. Excluding refinancings, volumes were up year over year, primarily driven by M&A. Volumes are likely to proceed at the lower pace as the forward calendar suggests no significant pickup for the foreseeable future.

Europe has followed a similar trend with total volume down from €16bn in the first quarter of last year to €14bn this first quarter, albeit within the institutional segment that the Investment Managers participate in have seen issuance rise 31% to €10bn. The Investment Managers believe, this has been driven by an increased level of cross border activity where global issuers look to source funding in US dollars, Euros and Sterling. Given the large cap focus, these are the type of businesses that they generally favour so view this as a positive. It allows the Investment Managers to look at the pricing across the various currencies and make a relative value call between the tranches.

For the quarter, CLOs ($22 billion) and retail funds ($9 billion) continued to be the main sources of demand for loans with pension plans also being consistent contributors. In light of recent discussions by the Federal Reserve about rate increases, the Investment Managers expect loan demand to remain strong for the foreseeable future.

US defaults remained subdued throughout the quarter and ended at 1.21% by volume and 1.02% by issuer count. Both of these numbers are down slightly from year end. As previously mentioned, it is widely expected in the market that a larger issuer will default, as they are already in the middle of restructuring talks with lenders; this will result in ~3.5% increase in the volume weighted default rate while leaving the rate by issuer count at a still low 1.2%. The Investment Managers expect this benign default environment to persist over the next 12-18 months due to very few maturities through 2016, continued cash flow growth of loan issuers and solid liquidity cushions. They are also seeing a better environment in Europe and are expecting a 2 to 4% default rate for 2014. As at the end of March it is currently at 4.4% given one large 2007 issuer missed an amortisation payment during the period.

Portfolio Management

The most material change the Investment Managers have made to the portfolio in the year-to-date period relates to our bond weight. As high yield traded back to 5.2-5.3%, the Investment Managers have significantly reduced the weight, from 8.71% in December to 0.95% as at the end of April. The exposure to non-US credits and rating profile have remained close to where they ended the year and no significant changes to those weights are anticipated for the foreseeable future.

Outlook

The Investment Managers maintain their positive outlook for the loan market, believing price gains for 2014 will primarily be limited to CCC and D rated issuers, which make up only 8% of the S&P/LSTA Leveraged Loan Index. Therefore performance is likely to be driven primarily by coupon returns and the most likely downside risk is an exogenous shock that leads to a "risk-off" environment which causes outflows from the asset class.

Material Events and Transactions

On 6 January 2014, the Company announced a conversion ratio for the conversion of C Shares into Ordinary Shares. The conversion ratio, based on the NAV of each share class as at 31 December 2013 (as calculated in accordance with the Company's prospectus dated 30 September 2013), was 0.98950222 Sterling Ordinary Shares for every one Sterling C Share held. The resulting Sterling Ordinary Shares were admitted to the Official List and to trading on the London Stock Exchange on 21 January 2014. The Sterling C Shares were permanently removed from trading on the London Stock Exchange with effect from the opening of trading at 8:00 a.m. on 21 January 2014.

Share Issues and Conversions

During the period, the following Ordinary Share issues and conversions took place.

Event	Effective date	Sterling share	USD Share
C share conversion	21 January 2014	421,103,481	-
Share class conversion as at 31 December 2013	10 January 2014	202,477	(332,539)
Share class conversion as at 31 January 2014	13 February 2014	42,947	(69,890)
Issue of shares as a Scrip Dividend	21 February 2014	217,354	67,590
Share class conversion as at 28 February 2014	11 March  2014	(96,711)	160,500
Share class conversion as at 31 March 2014	9 April 2013	(425,089)	701,984

Accordingly, the Company's issued share capital as at 7 May 2014 (being the latest practicable date prior to the release of this announcement) consists of 1,245,588,664 Sterling Ordinary Shares and 51,808,170 U.S. Dollar Ordinary Shares.

Dividends

The following dividends were declared to the shareholders during the reporting period:

Period	Date declared	Payment date	USD Share	Sterling Share
Quarter ended 31 December 2013 - Ordinary shareholders	6 January 2014	21 February 2014	$0.0094	£0.0094
Quarter ended 31 December 2013 - C shareholders	6 January 2014	7 February 2014	-	£0.0020
Quarter ended 31 March 2014 - Ordinary Shareholders	4 April 2014	27 May 2014	$0.0086	£0.0094

Report and Accounts

On 15 April 2014, the Company announced its annual results for the year ended 31 December 2013. On 25 April 2014, the Company posted its Annual Report and Financial Statements for the year ended 31 December 2013 to shareholders.

Financial Highlights

	7 May 2014	31  December 2013	30 September 2013	30     June 2013	28     March 2013	31 December 2012
NAV per Ordinary Share
- Sterling (£)	0.9947	1.0018	0.9942	0.9907	1.0051	0.9952
- US Dollars ($)	1.0041	1.0102	1.0032	0.9970	1.0118	1.0007
NAV per C Share
C shares issued on 26 March 2013
- Sterling (£)	n/a	n/a	n/a	0.9769	n/a	n/a
C shares issued on 29 October 2013
- Sterling (£)	n/a	0.9839	n/a	n/a	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 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 is denominated in U.S Dollars and Sterling and consists of U.S Dollar Ordinary Shares and Sterling Ordinary Shares.

The financial information covered herein for the period between 1 January 2014 and the date of publication of this interim management statement has not been audited.

By order of the Board

BNP Paribas Securities Services S.C.A., Guernsey Branch

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 recipient may distribute, or make available, this document (directly or indirectly) to any other person and no part of this document may be reproduced in any manner without the written permission of NB Global Floating Rate Income Fund Limited ("NBGFRIF").  This document and the information contained herein is not for release, publication or distribution (directly or indirectly) in or into the United States, Canada, Australia or Japan or to any "US person" as defined in Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act") or into any other jurisdiction where applicable laws prohibit its release, distribution or publication. It does not constitute an offer of securities for sale anywhere in the world, including in or into the United States, Canada, Australia or Japan.  Recipients of this document in jurisdictions outside the UK should inform themselves about and observe any applicable legal requirements in their jurisdictions. In particular, the distribution of this document may in certain jurisdictions be restricted by law. Accordingly, recipients represent that they are able to receive this document without contravention of any applicable legal or regulatory restrictions in the jurisdiction in which they reside or conduct business.

This document has been prepared by NBGFRIF and is the sole responsibility of NBGFRIF. No liability whatsoever (whether in negligence or otherwise) arising directly or indirectly from the use of this document is accepted and no representation, warranty or undertaking, express or implied, is or will be made by NBGFRIF or Neuberger Berman Europe Limited ("NBEL") or Neuberger Berman Fixed Income LLC ("NBFI") or any of their respective directors, officers, employees, advisers, representatives or other agents ("Agents") for any information or any of the opinions contained herein or for any errors, omissions or misstatements. None of Neuberger Berman LLC, NBEL, NBFI, nor any of their respective Agents makes or has been authorised to make any representation or warranties (express or implied) in relation to NBGFRIF or as to the truth, accuracy or completeness of this document, or any other written or oral statement provided. In particular, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be

placed on any projections, targets, estimates or forecasts contained in this document and nothing in this document is or should be relied on as a promise or representation as to the future.

NBGFRIF will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and investors will not be entitled to the benefits of that Act. The securities described in this document have not been and will not be registered under the Securities Act, or the laws of any state of the United States. Consequently, such securities may not be offered, sold or otherwise transferred within the United States or to or for the account or benefit of U.S. persons (as such term is defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, applicable state laws and under circumstances which will not require NBGFRIF to register under the Investment Company Act. No public offering of the securities is being made in the United States.

Neuberger Berman Europe Limited is authorised and regulated by the United Kingdom Financial Conduct Authority and whose registered address is at Lansdowne House, 57 Berkeley Square, London, W1J 6ER. Neuberger Berman LLC is a registered Investment Adviser and Broker Dealer and member of the New York Stock Exchange, the Financial Industry Regulation Authority and the Securities Investor Protection Corporation. Neuberger Berman Fixed Income LLC is a US registered Investment Adviser. Neuberger Berman is a registered trademark. All rights reserved. © 2014 Neuberger Berman.

 

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