NB Distressed Debt Invest. Fd. Ltd
NB Distressed Debt Investment Fund
Limited
Portfolio Update - Ordinary
Shares
NB Distressed Debt Investment Fund
Limited ("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
non-investment grade credit teams in the industry.
On 10 June 2013, the investment
period of the NBDD Ordinary Share Class ("NBDD") expired. The
assets of NBDDIF attributable to the Ordinary Shares were placed
into the harvest period following the expiry of the investment
period. The net proceeds from the realisation of such assets will
be distributed to Ordinary Shareholders in such times and amounts
as determined by the Board of Directors, with seven distributions
totaling in excess of $85 million made in 2014 and so far in 2015.
The distribution below will increase this total to approximately
$93 million or 75% of investors' original capital.
The Ordinary Share Class is one of
three classes of shares in NBDDIF. The other classes are the
Extended Life Share Class and the New Global Share Class, which
both offered exposure to new opportunities in this asset class
beyond 10 June 2013. The Extended Life Share Class is subject to an
investment period which ended on 31 March 2015 and the New Global
Share Class is subject to an investment period ending on 31 March
2017. Separate factsheets are produced for those share
classes.
Summary
To date, NBDD has returned 69% of
original capital ($85 million) to investors. NBDD had 29
exits with a weighted average IRR1 of 19% and net income
of $25 million. We continue to see significant upside
potential in the remaining portfolio, which we expect to realise as
we restructure and exit investments, and we continue to be focused
on returning capital to investors while ensuring we maximise the
value of all assets in the portfolio. During the third
quarter, there were significant events in certain investments,
which are described in more detail below.
Portfolio
As at 30 September 2015, 94.4% of
NBDDIF Ordinary Share net asset value ("NAV") was invested in
distressed assets. Unrestricted cash ended the quarter at
5.6% of NBDD's NAV. NBDD's NAV per share decreased 1.5% in
the third quarter, to $1.1988 from $1.2170 per
share.
Performance in the distressed and
high yield debt markets during the third quarter was challenging
from a mark-to-market perspective. We believe that performance
comparison versus other distressed debt managers is best indicated
by the HFRI Distressed/Restructuring Index2, which
declined 4.7% in the third quarter. Another indication of the
defaulted loan market's volatility is the defaulted S&P/LSTA US
D Rating Index3, which returned negative 23.3% for the
third quarter. The Credit Suisse and Bank of America Merrill Lynch
distressed high yield indices4,5 returned negative 19.6%
and 22.9%, respectively, during the third quarter. NBDD's
performance in the quarter was relatively steady in light of this
negative market performance. NBDD benefited from having no direct
oil & gas exposure as compared to the indices; however, NBDD
has indirect exposure to oil and natural gas prices through certain
utility investments.
In the quarter, one of NBDD's
utility investments announced that it entered into a sale of
substantially all of its assets at a proposed purchase price that
is approximately 60% higher than the market price at the time of
the sale announcement. The sale is expected (but not
guaranteed) to close in the fourth quarter, at which time we expect
to receive a majority of the purchase price with a small amount
held back in escrow. We had anticipated a sale of the company
as one of the most likely exit scenarios for this asset.
The manager of one of NBDD's largest
investments, announced its intention to contribute our investment's
assets with other land assets controlled by the manager into a
newly formed, publicly traded entity ("NewCo"). The
announcement of this news resulted in a 13% increase in the price
of the equity. If the transaction is successful, shareholders,
including NBDD, would receive shares of the NewCo and would allow
all NewCo shareholders to diversify risk through equitable
participation in a diversified land portfolio. To date, the market
has recognised the potential value of a diversified land portfolio
NewCo and our investment has benefited from this view. There is
market risk surrounding the potential IPO, however, and there is no
guarantee the IPO will be consummated or that our investment will
continue to benefit from the improved market view.
Subsequent to quarter end, a utility
investment announced that it reached an agreement to sell its core
asset, a combined-cycle natural gas power plant, to a large utility
company. The bid price for the LLC units held by NBDD rose
12% upon announcement. There is no guarantee that our investment
will continue to benefit from the announcement of this sale
transaction.
These are three examples of event
driven outcomes for our investments that we anticipate in our
analysis, but which are not fully reflected in market pricing until
the announcement of a specific event. We believe there are
more opportunities like this in the portfolio.
We continue to actively manage the
investments in our portfolio in order to generate profitable
realisations through significant events (asset sales, legal
outcomes, foreclosures, etc.) and ultimately return capital to
investors through consistent distributions. We continue to remain
positive about the investments in the portfolio and believe we can
generate attractive returns from current mark-to-market
valuations.
Exits
No exits in the third quarter of
2015.
Capital Return
On 13 November 2015, the Board of
Directors resolved to return $8 million (equivalent to
approximately $0.1443 per share) to holders of NBDD shares by way
of a compulsory partial redemption of NBDD shares. The
current distribution comprises all unrestricted cash available to
NBDD, save for amounts required for working capital requirements.
The reason the forthcoming distribution is greater than the
proceeds from the only exit this quarter is that we have also
received cash as distributions and principal repayments from other
positions which are yet to be fully exited. This distribution is
expected to be made in the fourth quarter of 2015. See
www.nbddif.com for further information
Data as at September 30, 2015,
unless otherwise stated. Past performance is not indicative of
future returns. All comments unless otherwise stated relate to
NBDD.
1. The term 'weighted
average IRR', as used in this fact sheet, is determined by
Neuberger Berman by calculating, for each investment exit, (A) the
investment exit's original purchase price, divided by (B) the total
of all investment exits' original purchase prices, multiplied by
(C) the IRR for the applicable investment exit. Neuberger
Berman then calculates the sum of the figures calculated in the
prior sentence for all of investment exits for the share
class.
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. This refers to the
D-rated cohort of the S&P /LSTA Leveraged Loan Index indicating
defaulted loans. The S&P/LSTA Leveraged Loan Index is designed
to mirror the investible universe of the $US-denominated leveraged
loan market.
4. Credit Suisse High
Yield Index is designed to mirror the investible universe of the
$US-denominated high yield debt market. The
distressed/default rating index includes issuers who have filed for
bankruptcy protection or missed a coupon payment and the grace
period has expired; Standard & Poor rating is D,CC or C and/or
Moody's rating is Ca or C (provided by Credit Suisse).
5. The BofA Merrill Lynch
US Distressed High Yield Index is a subset of the BofA Merrill
Lynch US High Yield Index including all securities with an
option-adjusted spread greater than or equal to 1,000 basis points.
The BofA Merrill Lynch US High Yield Index tracks the performance
of US dollar denominated below investment grade corporate debt
publicly issued in the US domestic market (data source:
Bloomberg).
-ENDS-
For further information please
contact:
Neustria
+44 (0)20 3021 2583
Nick Henderson
Rob Bailhache
Charles Gorman
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.
Click on, or paste the
following link into your web browser, to view the associated PDF
document.
http://www.rns-pdf.londonstockexchange.com/rns/0693G_-2015-11-17.pdf