NB Distressed Debt Invest. Fd. Ltd
3 August 2017
NB Distressed Debt Investment Fund Limited
Portfolio Update - Global Shares
NB Distressed Debt Investment Fund Limited's ("NBDDIF") 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's holdings are 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 in order to capture the growing opportunity in distressed debt globally. NBDG's investment period ended on 31 March 2017, following which the harvest period commenced.
The New Global Share Class is one of three classes of shares in NBDDIF. The others are the Ordinary Share Class and the Extended Life Share Class. The Ordinary Share Class was subject to an investment period which ended on 10 June 2013 and the Extended Life Share Class was subject to an investment period which ended on 31 March 2015. Separate factsheets are produced for those share classes.
Manager Commentary
To aid investors' understanding of the portfolio's development and underlying value, if any of NBDG's investments experience a partial realisation in future it will be reported in a new factsheet section entitled 'Partial Realisations'. A partial realisation will have occurred, among other reasons, if (i) a distribution is received that represents 75% of the cost basis of the investment at the time of the distribution; (ii) cumulative distributions received are greater than the original cost basis of the investment; (iii) a sale of the underlying asset has occurred or (iv) a debt tranche has been refinanced. These partial realisations will not be full investment exits because residual value remains unrealised and/or undistributed due to escrows or holdbacks on the sales proceeds or because tranches of debt/equity remain. IRRs and RORs are likely to be different at the time of the final exit. There were no partial realisations in this quarter.
Net Asset Value ("NAV") declined 3.7% in the quarter with a majority of the decline due to adverse movement in foreign exchange ("FX") rates. US Dollar denominated investments currently represent 72% of NAV and Sterling appreciated 3.8% against the US Dollar during the quarter. On 31 March 2017, the portfolio entered its harvest period. We believe value in portfolio will be realised upon exit after a liquidity event (i.e. sale, refinancing, IPO) and we are committed to returning capital to investors as we exit investments. Given the proximity to the end of the investment period, there were no exits during the quarter.
Net cash generated from portfolio activities was negative (£1.9 million) during the quarter. NBDG made one follow-on investment of £2.3 million in the second lien convertible debt of an auto components company to protect against dilution, which was offset by £0.3 million received from principal repayment on secured bank debt on a utility company.
Portfolio Update
NBDG ended the quarter with NAV per share of 92.28p compared to 95.78p at the end of March, a decline of 3.7%. The majority of the fall was due to the appreciation of Sterling against US dollar denominated investments. Other contributing factors include a decline in the public equity of a shipping company, a decline in the public equity of a building and development company and a decline in the private equity of eastern US lodging and casino investment.
As of 30 June 2017, 97% of NBDG's NAV was invested in distressed assets with 3% held in cash, net accruals and reserves. The current portfolio consists of 25 issuers across 11 sectors. The largest sector concentrations include lodging & casinos, shipping, utilities, oil & gas, and nonferrous metals/minerals. Notable events involving NBDG's existing investments are below1:
· A building and development company announced and completed an IPO during the quarter which priced at $14.00/share and ended the quarter at $14.76/share. The IPO allows the company to raise capital for growth and development in its highly desirable land portfolio and gives investors more liquidity in its shares.
· A lodging and casino investment received an indicative bid for the property which is being negotiated with the buyer.
· NBDG participated in an add-on financing to a second lien convertible debt position in an auto components company to protect against post-conversion equity dilution. Proceeds from the transaction will be used to increase capacity and improve operational efficiency at certain plants. The company's financial and operational performance has been improving since it emerged from bankruptcy protection in 2015 and the company is well positioned to take market share from its two primary competitors with this additional capital.
· A power plant investment experienced operating issues causing a shut-down of the plant for 45 days during the quarter. These issues have been resolved and the plant has returned to operating as planned. The company is planning to file insurance claims to recoup losses from the shut-down.
Significant Value Change (approximately 0.5% NBDG NAV or +/- £400,000)2
Industry |
Instrument |
Q217 Total Return |
Comment |
Utilities |
Secured Loan |
(£0.4 million) |
Developments in Chapter 11 case |
Lodging & Casinos |
Private Equity |
(£0.7 million) |
No fundamental change, mostly FX loss |
Building & Development |
Public Equity |
(£0.7 million) |
Uncertainty regarding environmental approvals |
Shipping |
Public Equity |
(£0.9 million) |
Decline in price as assets have stabilised |
Distributions
There were no distributions during the first quarter. Total distributions to date are £1.0 million.
Share Buy-Backs
NBDG purchased 615,200 shares during the second quarter under the discount control policy at a total cost of £478,255 and an average discount to NAV of 17.20%3. The shares have been cancelled.
Factsheet
An accompanying factsheet on the information provided above can be found here http://www.rns-pdf.londonstockexchange.com/rns/9442M_-2017-8-2.pdf 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.
-ENDS-
For further information please contact:
Neustria Partners +44 (0)20 3021 2580
Nick Henderson
Charles Gorman
Rob Bailhache
__________________________________________________
Data as at 30 June 2017. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDG.
Source: Bloomberg, except where otherwise stated.
1. Notable corporate events may or may not result in an increase or decrease in the value of an NBDG investment or a change in NBDG's NAV per share. Please note that an investment may experience a change in value (positive or negative) during the quarter whether or not it was subject to a notable corporate event. Not all events involving existing investments are disclosed above. In addition, certain corporate events may not have been disclosed due to confidentiality obligations.
2. Industry categorisations determined by Neuberger Berman. Total Return determined by the Administrator, and includes realised and unrealised gains and losses, expenses, FX gains and losses, and all income on investments according to US GAAP accounting.
3. Source: Stifel Nicolaus Europe Limited.
This document is issued by Neuberger Berman Europe Limited ("NBEL") which is authorised and regulated by the UK Financial Conduct Authority ("FCA") and is registered in England and Wales, at Lansdowne House, 57 Berkeley Square, London, W1J 6ER and is also a Registered Investment Adviser with the Securities and Exchange Commission ("SEC") in the U.S. and regulated by the Dubai Financial Services Authority.
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 Distressed Debt Investment Fund Limited ("NBDDIF"). 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. Securities in the fund may not be offered or sold directly or indirectly into the United States or to U.S. Persons. 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 NBDDIF 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. NBDDIF does not accept any liability for actions taken on the basis of the information provided in this document. This report includes candid statements and observations regarding investment strategies. Individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact. The views and opinions expressed herein include forward-looking statements which may or may not be accurate over the long term. Forward-looking statements can be identified by words like ''believe'', ''expect'', ''anticipate'', or similar expressions. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate. The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security. Neuberger Berman is a registered trademark.
© 2017 Neuberger Berman Ref: 131228
