NB Distressed Debt Invest. Fd. Ltd
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.
On 31 March 2015, the investment
period of the Extended Life Share Class ("NBDX") expired. The
assets of NBDDIF attributable to the Extended Shares were placed
into the harvest period following the expiry of the investment
period. Prior to the expiry of the investment period, distributions
were made to reflect capital profits only arising from the exit of
any assets attributable to Extended Life Shares, with a total of
approximately $55 million in distributions made in 2014 and 2015.
The net proceeds from the realisation of such assets will be
distributed to Extended Life Shareholders at such times and in such
amounts as determined by the Board of Directors of NBDDIF.
The distribution referred to below will increase the total amount
distributed to investors to approximately $90 million or 28% of
investors' original capital.
The Extended Life Share Class is 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 New Global Share Class is subject to an
investment period which will end on 31 March 2017. Separate
factsheets are produced for those classes.
Summary
To date, NBDX has returned 15% of
original capital ($55 million) to investors. NBDX had 33 exits to
date with a weighted average IRR1 of 18% and net income
of $66 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, 95.2% of
NBDDIF Extended Life Share net asset value ("NAV") was invested in
distressed assets. Cash available for distributions and
working capital ended the quarter at 4.8% of NBDX's NAV. NBDX's NAV
per share decreased 3.1% in the third quarter, to $1.1020 per share
from $1.1369 per share. The primary drivers of NBDX's NAV decrease
were secondary market price declines of positions in the oil &
gas industry, in which the NAV decrease was offset by positive
developments in the utility and building & development
industries.
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 Loan 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.
NBDX's performance in the quarter was relatively steady in light of
this negative market performance due to it being less heavily
weighted to oil & gas issuers than the indices.
In the quarter, one of NBDX'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 NBDX, 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 NBDX 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
We had one exit in the quarter
bringing total exits to 33 since inception.
Investment 33: We purchased $2.3
million face value of a senior secured loan at 36.5% of par,
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.
Capital Return
On 14 August 2015, the Board of the
Company resolved to return $17.5 million (equivalent to
approximately $0.0546 per share) after expenses to holders of NBDX
shares by way of a compulsory partial redemption of NBDX shares.
The current return comprises all cash available to NBDX, save for
amounts deemed to be required for existing positions and for
working capital requirements. This distribution is expected to be
made in the third quarter of 2015.
Face Value
|
Entry price
|
Exit Price
|
IRR
|
$2.3 million
|
36.50%
|
44.00%
|
16%
|
Share Buy Backs
Under the authorised share buy-back
policy, 756,000 shares of NBDX were purchased in the open market at
a total cost to $795,369 or an average cost of $1.05. This
brings the total shares of NBDX purchased in the market as at 30
September 2015 to 1,348,000 at cost of $1,457,000. The purchased
shares of NBDX have been cancelled.
Data as at September 30, 2015. Past
performance is not indicative of future returns. All comments
unless otherwise stated relate to NBDX.
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
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