TIDMNBDD TIDMNBDX TIDMNBDG
RNS Number : 3433X
NB Distressed Debt Invest. Fd. Ltd
19 November 2014
NB Distressed Debt Investment Fund Limited
Portfolio Update - Extended Life 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.
The Extended Life Share Class ("NBDX") was created in April
2013(1) and is subject to an investment period ending on 31 March
2015, following which the assets will be placed into run-off.
NBDDIF will seek to return to the holders of Extended Life Shares
all net capital profits arising from the exit of any assets
attributable to those shares, at least every six months, with the
first such distribution having been made in the first quarter of
2014. A second distribution was made in the third quarter of
2014.
The Extended Life Shares are one of three classes of shares in
NBDDIF. The other classes are the Ordinary Share Class and the New
Global Share Class. The Ordinary Share Class is subject to an
investment period which ended on 10 June 2013 and the Global Share
Class is subject to an investment period which will end on 31 March
2017. Separate factsheets are produced for those classes.
Summary
We were gratified to see the positive NAV movement achieved
year-to-date in 2014. In the third quarter we exited three
positions, which were all positive and contributed to NAV. 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 30 September 2014, 97.3% of the NBDX NAV was invested in
distressed assets. Cash available for new investments and working
capital ended the quarter at 2.7% of the NBDX NAV. The NBDX NAV per
share increased 3.8% in the first nine months of 2014, to $1.2686
per share from $1.2218 per share. We believe that performance
comparison versus other distressed debt managers is indicated by
the HFRI Distressed/Restructuring Index(2) which returned 2.5% in
the first nine months of 2014. In the third quarter of 2014, NBDX's
NAV per share declined 0.9% per share, primarily due to
mark-to-market declines on existing positions.
The market environment for distressed debt was challenging in
the quarter, as indicated by the HFRI Distressed/Restructuring
Index which declined 2.8% in the quarter. In the third quarter,
NBDX experienced the markdown of secured notes of a portfolio
company which detracted 1.1% from NAV. This portfolio company
reported that it had become the subject of an investigation
relating to potential regulatory and criminal violations, resulting
in a high degree of uncertainty in the restructuring process and
leading to the mark-to-market loss in the quarter. During the
quarter we saw our 24th, 25th and 26th exits since inception, which
are described in detail below. We added incrementally to existing
names and initiated new positions in the infrastructure, real
estate and energy sectors.
Market Update(3)
We continue to experience an improving environment for
distressed debt in our sectors of interest. We believe the pipeline
of opportunities in real estate, transportation and energy debt is
particularly compelling. EU banks in particular increased their
disposal of European and U.S. loans and assets to EUR64 billion in
2013, versus EUR46 billion in 2012, EUR36 billion in 2011 and EUR11
billion in 2010. EUR44 billion of debt sales have occurred in the
first six months of 2014, on a run-rate to exceed EUR80 billion for
the full year. However, over EUR1 trillion of non-performing loans
remain on EU banks' balance sheets. We believe that an
ECB-sponsored harmonization of NPL definition across countries may
continue to facilitate further recognition and disposal of
distressed loans.
Exits
In the third quarter we had three exits, bringing our total to
26 since inception. These exits generated approximately $12.4
million of total income and gains for NBDX.
Investment 24: We purchased $19.0 million face value of senior
notes at 71.3% of par, issued by an independent power producer. At
the time of purchase, the company was burdened by an overlevered
balance sheet and near-term debt maturities. Our investment thesis
was that the debt would likely be restructured into new securities
in order to avoid a default, or that in the event of default we
would own equity in the assets at an attractive valuation relative
to comparable assets. The company ultimately filed Chapter 11
bankruptcy and sold substantially all of its assets to a Fortune
500 energy company. Our recovery on the notes came from the
proceeds of the sale, interest payments pre-bankruptcy filing and
the sale of remaining claims in the secondary market. Total income
from this investment was $3.2 million.
Investment 25: We purchased $18.7 million of defaulted senior
secured debt at 80.0% of par secured by a professional sports team,
arena and related real estate. At the time of purchase we believed
that the value of the collateral package was well in excess of the
face amount of the company's debt plus accrued and unpaid interest.
We also believed that the team and arena would likely be sold to a
new owner who would refinance our debt, or that we and other
holders would assume an ownership position at a discounted
valuation versus comparable assets. Ultimately, the assets were
sold to a new ownership group who paid past due interest and
refinanced the secured debt. Total income from this investment was
$5.5 million.
Investment 26: We purchased $8.5 million face value of senior
secured notes at 34.5% of par, secured by a continuing care
retirement community located in the southern U.S. After
construction was completed, the facility did not generate
sufficient cash flows to service its debt and the issuer defaulted
and filed Chapter 11 bankruptcy. We believed that the value of the
property was significantly in excess of our purchase price and that
we would either restructure the debt or ultimately own equity in
the property. The bondholders and the company subsequently
completed a debt restructuring which allowed the company to emerge
from bankruptcy and ultimately refinance its restructured
securities. Total income from this investment was $3.7 million.
Data as at September 30, 2014. Past performance is not
indicative of future returns. All comments unless otherwise stated
relate to NBDX.
1. The Extended Life Share Class was created in April 2013 when
holders of Ordinary Shares were invited to convert those shares
into Extended Life Shares. The information in this fact sheet
therefore relates to the Ordinary Shares up to April 2013 and to
the Extended Life Shares thereafter.
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: Data from PWC Market Update Reports dated March 2014 and July 2014.
-ENDS-
For further information please contact:
Neuberger Berman Europe Limited +44 (0)20 3214 9000
Damian Holland
Financial Dynamics +44 (0)20 7269 7297
Neil Doyle
Ed Berry
Laura Ewart
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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