Portfolio Update

RNS Number : 5764H

NB Global Floating Rate Income Fund

13 July 2012

 



NB Global Floating Rate Income Fund

Portfolio Update

NB Global Floating Rate Income Fund Limited (the "Fund") is a Guernsey incorporated closed-ended investment company. The Fund targets an annualised net yield per share in the region of 5% on the issue price, plus capital appreciation, while seeking to protect investors from rising interest rates.

The Fund's managers expect to generate this yield by investing in a global portfolio of more than 100 senior secured corporate loans with selective use of senior bonds, diversified across at least 15 industry sectors. The Fund is managed by three accomplished portfolio managers backed by a credit team of over 30 investment professionals.

The Portfolio, excluding cash, as at 30 June 2012:

·     was split 92.32% USD, 3.83% EUR and 3.59% GBP

·     had 11.56% allocated to bonds out of the maximum 20% allowable

·     was invested primarily in B (55.52%) and Ba (37.04%) rated investments¹

Market Environment²

The loan asset class continued its positive momentum in the second quarter of the year, despite market volatility during May and part of June as European sovereign debt issues returned to the fore once again.

For the year to date, the US S&P/LSTA Loan Index returned 4.54% (0.75% in Q2) with the single B rating segment (where the portfolio has its largest exposure and over-weight) once again leading the way with 5.75% (0.61% in Q2)¹. Similarly European performance held up well with the S&P European Leveraged Loan Index (ELLI)up to 4.93% from 4.36% in Q1¹. Throughout the period, loan bid prices remained robust despite the market uncertainty. As a guide, the US S&P/LSTA Loan Index had an average bid of 94.5 at the end of April and fell just 1.0% to 93.5, before improving to 93.9. This compares well to the last major period of volatility we experienced in August of last year when the Index fell from 94.7 at the end of July to 90.1 by the end of August, a fall of 4.8%. A combination of a lack of mutual fund outflows and increased CLO creation levels has helped keep demand for the asset class, and therefore prices, high. 

New deal flow continued to provide good investment opportunities and the $57bn of issuance in Q2 was only slightly off Q1 levels. Within this, we have started to see more weighting towards M&A transactions with $34bn of acquisition-related loans, the second highest quarterly result in the last two years⁴. European issuance continues to underwhelm with just €5bn seen in the quarter, with recent deal flow seemingly focused on more challenging, smaller deals, which have the potential to become protracted syndications and further stifle new issue. The combination of the European sovereign debt issues and less positive news coming out of the US has seen new issue yields widen by between 100bp and 150bp, with BB now pricing in excess of 5.0% and single B above 7.0%⁴.

Our view on default rates for 2012 is sustained, with the current trailing 12m default rates of 1.04% for the US and 5.50% for Europe⁴ within our forecasts of 2.0% and 7.0% respectively. The portfolio has not had any defaults since inception.

Outlook

We expect our investment focus over the next quarter to remain in the US primary market, where we are seeing a steady pipeline of new transactions with attractive pricing. The US pipeline currently stands at just over $15bn, the majority M&A related, whilst Europe continues to disappoint at €1.0bn⁴. With the relative stability in the loan market since the Q1 rally, we feel that secondary market opportunities are limited, therefore we will continue our strategy of selling low current yielding assets that were bought at a discount, and reinvesting the proceeds in higher yielding new issues. We remain comfortable with the portfolio composition and do not expect it to change at this time. 

Source: BNP Paribas and Bloomberg. Data as at 30 June 2012. Past performance is not indicative of future returns.

1.   Source: Standard & Poor's. 

2.   Total return: $ NAV based returns inc. dividends.

3.   Gross of fees.

4.   Source: S&P LCD.

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited          [phone]

Anji Stewart

FTI Consulting                                              [phone]

Neil Doyle                   

Ed Berry

Laura Pope

Background Information

The Company is a registered closed-ended investment company incorporated in Guernsey. 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 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 will invest 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.

Established in 1939, Neuberger Berman is one of the world's leading private, independent employee-controlled asset management firms, managing approximately $199 billion in assets as of March 31, 2012. Neuberger Berman provides a broad range of global investment solutions to institutions and individuals through customized separately managed accounts, funds and alternative investment products.  

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.

The price of investments may fall as well as rise and investors may not get back the full amount invested. The target yield should not be taken as an indication of the Fund's expected future performance or results. The target yield is a target only and there is no guarantee that it can or will be achieved and it should not be seen as an indication of the Fund's actual or expected return.

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. © 2012 Neuberger Berman.

 

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