NB Distressed Debt Invest. Fd. Ltd
NB Distressed Debt Investment Fund
Limited
Portfolio Update - Global
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 New Global Share Class ("NBDG")
was created in March 2014 and aims to capture the growing
opportunity in distressed debt globally. NBDG is subject to an
investment period ending on 31 March 2017, following which the
assets will be placed into the harvest period.
The New Global Share Class is one of
three classes of shares in NBDDIF. The other classes are the
Ordinary Share Class and the Extended Life Share Class. The
Ordinary Share Class is subject to an investment period which ended
on 10 June 2013 and the Extended Life Share Class is subject to an
investment period which ended on 31 March 2015. Separate factsheets
are produced for those classes.
Summary
Given the current volatility across
global markets and the commodity pricing environment, we believe
that the opportunity set in distressed debt and post-reorganisation
securities of companies with tangible assets remains robust,
particularly in the oil & gas, power generation,
transportation, and commercial and residential real estate sectors.
We continue to focus on distressed situations backed by hard assets
at attractive valuations and actively manage the current
investments in our portfolio in order to generate profitable
realisations through significant events (asset sales, legal
outcomes, foreclosures, etc.). We remain positive about the
investments in the portfolio and believe we can generate attractive
returns from current mark-to-market valuations.
Portfolio
As at 30 September 2015, 86.1% of
NBDDIF New Global Share net asset value ("NAV") was invested in
distressed assets. 13.9% of NBDG's NAV is held in cash and is
available for new investments and working capital. NBDG had
investments in 27 names across 11 industries. The largest
sector concentrations were in lodging & casinos, utilities,
shipping and oil & gas.
NBDG's NAV per share increased 0.2%
in the third quarter, to 81.45 pence per share from 81.25 pence per
share. For the third quarter, positive movement in FX prices offset
a decline in value of the portfolio from mark-to-market unrealised
losses resulting in relatively flat performance for NBDG. One
of the lodging & casino investments contributed the largest
mark-to-market gain in the portfolio. Declines in energy markets
and subsequent mark-to-market unrealised losses in our energy
related investments generally contributed to the unrealised losses
in the portfolio.
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 Index1, 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 Loan Index2, which returned negative 23.3% for
the third quarter. Further, the Credit Suisse and Bank of
American Merrill Lynch distressed high yield indices3,4
returned negative 19.6% and 22.9%, respectively, during the
third quarter.
In the quarter, one of NBDG'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 our largest
investments announced its intention to combine 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 NBDG, 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 NBDG 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.). We continue to remain positive about
the investments in the portfolio and believe we can generate
attractive returns from current mark-to-market
valuations.
Market Update5
The turmoil in credit markets in
2015 presents NBDG with a pipeline of stressed and distressed
opportunities in the real estate, transportation, and energy
sectors. Given the volatility in energy markets, we
continue to evaluate different opportunities and how best to invest
NBDG capital.
EU banks have increased their
disposal of European and U.S. loans and assets to €139 billion year
to date through 30 June 2015, surpassing the 2014 level of €91
billion. The level of 2015 disposals is expected to exceed
€150 billion for the full year. However, over €1 trillion of
non-performing loans still remain on EU banks' balance sheets. We
believe that the European regulatory environment may continue to
facilitate further recognition and disposal of stressed and
distressed assets.
Exits
There was one exit in the quarter
bringing the total number of exits since inception to date to
six. Weighted average IRR6 on the six exits is 17%
with £1.5 million of net income on these exits.
Investment 6: We purchased $3.9
million face value of a senior secured loan at 36.5% of par. The
loan was secured by five 2,800 TEU containership vessels, that were
time chartered out by the parent company. The company defaulted on
the loans, and the lenders sought recovery by taking ownership of
the vessels. Given a difference of opinion on strategies for the
vessels post-restructuring, we partnered with two other lenders,
and took control of two of the vessels while the remaining lender
group took control of the final three. After a period of
maintenance on the vessels, and a number of short-term charters, we
ultimately sold the vessels to strategic buyers. Total income from
the investment was £0.2 million (NBDG's currency).
Face Value
|
Entry price
|
Exit Price
|
IRR
|
$3.9 million
|
36.50%
|
44.00%
|
23%
|
Share Buy Backs
Under the authorised share buy-back
policy, 1,460,000 shares of NBDG were purchased in the open market
at a cost of £1,044,785 or an average cost of 71.56 pence. This
brings the total shares of NBDG purchased in the market as at 30
September 2015 to 2,010,000 at a cost of £1,465,910. The
purchased shares of NBDG are held in treasury. See
www.nbddif.com for further information.
Data as at September 30, 2015 unless
otherwise noted. Past performance is not indicative of future
returns. All comments unless otherwise stated relate to
NBDG.
1. 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.).
2. 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.
3. 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).
4. 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).
5.
Source: Data from PWC dated July 2015 and March
2015.
6. 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.
-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/0690G_-2015-11-17.pdf