The following replaces the 'Portfolio Update - Extended Life Shares - 30 Sep18' announcement released on 15 November 2018 at 07:00 under RNS No 3620H.
The PDF link in the Factsheet section has been updated to launch the correct document.
All other details remain unchanged.
The full text is shown below.
15 November 2018
NB Distressed Debt Investment Fund Limited
Portfolio Update - Extended Life 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.
On 31 March 2015, the investment period of the Extended Life Share Class ("NBDX") expired and the assets of NBDDIF attributable to the Extended Life Shares were placed into the harvest period. Including the $3.0 million capital distribution paid in Q318 (as described below), $220.4 million (equivalent to 61% of original capital) has been distributed (income by way of dividend, capital by way of redemption and share buy-backs) to shareholders since the realisation phase for this share class began. Post quarter-end, the Board approved an income distribution by way of dividend to be paid in the fourth quarter of $2.1 million bringing total capital approved / distributed to $222.5 million or 62% of original capital.
The Extended Life Share Class is one of three classes of shares in NBDDIF. The others are the Ordinary Share Class and the New Global Share Class. The Ordinary Share Class was subject to an investment period which ended on 10 June 2013 and the New Global Share Class was subject to an investment period which ended on 31 March 2017. Separate factsheets are produced for those share classes.
Manager Commentary
NBDX is in the harvest period and the investment manager is working to restructure, reorganise, and realise exits for each investment to maximise the value of the portfolio for the shareholders. During the harvest period, the investment manager seeks a catalyst for each of the remaining investments that will allow for a realisation and return of capital and profits, if applicable. Post quarter-end, the Board approved a $2.1 million ($0.0134 / share) distribution of 2017 income by way of dividend to investors which brings total distributions approved / paid to 62% of original capital.
The investment manager uses economic, industry and issuer specific data to estimate the gross realisable value in downside, base case and upside scenarios for each investment in the portfolio. It currently estimates the range of the aggregated realisable value for the investments in the portfolio is between 92% and 167% of the 30 September 2018 market values of these investments, with a base case of 131%. Shareholders should, however, note that: (i) the realisable values of the investments are calculated on a gross basis and, in particular, do not reflect the investment manager's management fee and investment-related expenses; and (ii) this range of aggregate realisable values is an estimate only, and there is no guarantee that the value actually realised will be within this range. Further details on the risks relating to "forward looking information" are set out at the end of this factsheet.
The investment manager's current expectation is that we will distribute 85-90% of 30 September 2018 NAV in 2019, and the remainder in 2020. Delays in the timing of the exits of a commercial real estate investment and an oil and gas investment, representing 11% of 30 September 2018 NAV, shifted the timing of distributions from 2018 to 2019. Changes to timing are expected and will continue to be updated in the quarterly factsheets. For regulatory reasons, the final 10% of the total return in respect of any class of participating shares in NBDDIF will be returned to shareholders with the final compulsory redemption of all of the outstanding shares of that class.
NBDX had one exit detailed below, as the last of the Chicago condominium investments was exited. This was the sole exit and generated $0.4 million cash during the quarter. The exit was in line with the previous quarter's base case estimates for value and timing. This cash, combined with $0.7 million cash generated from performing investments, was used to fund the income dividend approved in Q418. The ratio of total value (capital distributions, dividends, buy-backs, and current NAV) to original capital is 106%.
Portfolio Update
NBDX ended the quarter with NAV per share of $1.0422 compared to $1.0840 at the end of June. The NAV decreased 3.9% in the quarter principally due to decreases in five equity investments. During the harvest period, a larger percentage of the fund's investments are in reorganised equities, including public equities, which were affected by the market volatility during the quarter. More detail can be found below. At quarter-end, 97% of NBDX's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 3% held in cash, including the cash for the approved income dividend.
The current portfolio consists of 28 issuers across 13 sectors. The largest sector concentrations were in Lodging & Casinos, Shipping, Oil & Gas and Auto Components.
Notable events below describe activity in the investments during the quarter and post quarter-end1.
· Lodging & Casino - During the third quarter we terminated the previously disclosed LOI negotiations with a potential buyer as they wished to change the terms of the transaction. We are currently in discussion with another interested party. We reduced the carrying value of this investment by 9% ($0.6 million) to reflect the delay in timing and increased uncertainty of the transaction.
Significant Value Change (approximately 0.5% NBDX NAV or +/- $800,000)3
INDUSTRY |
INSTRUMENT |
Q318 TOTAL RETURN |
MARKET VALUE |
QUARTERLY PRICE CHANGE |
COMMENT |
TORM |
Public Equity |
($1.0 million) |
$3.3 million |
-23% |
With weakness in the crude tanker market, new build crude tankers are carrying refined products, creating excess capacity and putting pressure on charter rates for TORM vessels. |
Containers & Packaging |
Private Equity |
($1.1 million) |
$5.2 million |
-16% |
An inflationary raw material price environment negatively impacted margins as the company struggles to pass through the increase costs to its customers. |
Lodging & Casino |
Private Equity |
($1.6 million) |
$17.3 million |
-9% |
See Portfolio Update above. |
Five Point Holdings |
Public Equity |
($1.7 million) |
$8.6 million |
-16% |
Environmental clean-up concerns at one of the company's properties continue to weigh on the company. In addition, rising rates have impacted valuations in the homebuilding sector in general. |
Non-ferrous metals |
Private Equity |
($2.0 million) |
$6.8 million |
-26% |
The company announced it was being acquired, but the value to equity owners was less than expected and the price declined on the news. |
Sector Analysis - Auto Components
Our quarterly in-depth look at investments by sector focuses on NBDX's Auto Components sector investments, which is its fourth largest sector, representing 8.7% of NAV.
NBDX owns First Lien Notes, Second Lien Convertible Notes, and private equity in an auto component company. The company is a global leader in stored electrical energy solutions, and one of the largest manufacturers and suppliers of lead-acid batteries for transportation and industrial applications in the world. We originally purchased secured notes that were converted to equity in 2015 following a lengthy Chapter 11 bankruptcy process that included significant negotiations with California State environmental regulators. Following the company's emergence from bankruptcy the newly hired management team identified opportunities to dramatically improve manufacturing capacity, eliminate costs, and capture incremental market share from its largest competitors. The transformational business plan required incremental capital to upgrade technology and modernise manufacturing plants. Existing shareholders, including NBDX, funded the plan in 2017. Performance has been modestly below plan projections, but the plan is in-process and management remains confident in long-term profitability projections.
Exits
There was one exit during the quarter with total return of $3.1 million. This was the conversion of a partial realisation to an exit once the warranties at the property had expired. Inception to date, NBDX has experienced 52 exits with total return of $112.8 million, IRR of 15% and ROR of 27%.
Exit 52
NBDX invested $7.2 million to purchase a senior construction loan secured by 168 condominium units and related parking spaces located south of Downtown Chicago, Illinois. The lender group executed a deed-in-lieu with the borrower and took possession of the underlying collateral. The group engaged a nationally recognised real estate firm to act as asset manager and broker for the remaining units, invested $0.8 million additional capital to complete the units and common areas, and rebranded the property. The remaining units were sold with proceeds being used to return capital and profits to the owners. Cash received to date is $11.1 million. The total return on the investment for NBDX is $3.1 million over 93 months. The IRR is 11% and ROR is 39%.
EXIT |
CASH INVESTED |
CASH RECEIVED |
TOTAL RETURN |
IRR |
ROR |
MONTHS HELD |
52 |
$8.0 million |
$11.1 million |
$3.1 million |
11% |
39% |
93 |
Partial Realisations
There was no material partial realisation activity during the quarter. The table below has been updated with current values.
PARTIAL REALISATION |
SECTOR |
QUARTER REPORTED |
CASH INVESTED |
CASH RECEIVED TO DATE |
CURRENT VALUE OF INVESTMENT |
TOTAL RETURN |
CURRENT IRR |
CURRENT ROR |
MONTHS HELD |
3 |
Commercial Mortgage |
Q217 |
$23.1 million |
$29.8 million |
$0.7 million |
$7.4 million |
10% |
32% |
62 |
4 |
Containers & Packaging |
Q217 |
$5.1 million |
$6.9 million |
$0.7 million |
$2.5 million |
28% |
50% |
69 |
5 |
Containers & Packaging |
Q217 |
$6.6 million |
$16.7 million |
$5.2 million |
$15.3 million |
56% |
230% |
72 |
Distributions
During the third quarter, NBDX paid a capital distribution by way of redemption of $3.0 million. Post quarter-end, the Board approved a $2.1 million income distribution to be paid by way of dividend in the fourth quarter. Since inception, $222.5 million (or 62% of original capital) has been approved / distributed to shareholders in the form of share redemptions, income dividends and share buy-backs. The ratio of total value (capital distributions, dividends, buy-backs, and current NAV) to original capital is 106%.
Share Buy-Backs
There were no buybacks during the quarter. Total shares repurchased since inception to 30 September 2018 is 7,616,313 or 2% of the original NBDX shares. All shares have been cancelled.
Factsheet
An accompanying factsheet on the information provided above can be found here http://www.rns-pdf.londonstockexchange.com/rns/6850H_1-2018-11-16.pdf or 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:
KL Communications Tel: +44 (0) 3603 2803
Charles Gorman [email protected]
Data as at 30 September 2018. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDX.
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 NBDX investment or a change in NBDX'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. 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. References in this factsheet to the market value of specific fund investments refers to the value determined in accordance with NBDX's valuation policy, which may include fair valued investments where third party prices are not available or are not considered accurate.
This document has been issued by NB Distressed Debt Investment Fund Limited (the "Company"), and should not be taken as an offer, invitation or inducement to engage in any investment activity and is solely for the purpose of providing information about the Company. This document does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any share in the Company or securities in any other entity, in any jurisdiction.
The Company is a closed-ended investment company incorporated and registered in Guernsey and is governed under the provisions of the Companies (Guernsey) Law, 2008 (as amended), and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). It is a non-cellular company limited by shares and has been declared by the GFSC to be a registered closed-ended collective investment scheme. The Company's shares are admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market for listed securities.
Neuberger Berman Europe Limited ("NBEL"), the Company's Manager, is authorised and regulated by the 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 presented solely for information purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. We do not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. Any views or opinions expressed may not reflect those of the Company or NBEL as a whole. All information is current as of the date of this material and is subject to change without notice. No part of this document may be reproduced in any manner without prior written permission of the Company and NBEL.
There is no guarantee that any of the goals, targets or objectives described in this factsheet will be achieved. This factsheet may contain "forward-looking information" which can be identified by the use of forward looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe" or the negatives thereof or other variations thereon or comparable terminology. Such statements are not purely historical in nature, and may include, among other things, projections, forecasts or estimates of cash flows, yields or returns, scenario analyses and proposed or expected portfolio composition. The forward-looking information contained herein is based upon certain assumptions about future events or conditions and is intended only to illustrate hypothetical results under those assumptions (not all of which will be specified herein). Not all relevant events or conditions may have been considered in developing such assumptions. The success or achievement of various results and objectives is dependent on a multitude of factors, many of which are beyond the control of the Company and Neuberger Berman. Actual volatility and returns will depend on a variety of factors including overall market conditions and the ability of the Company and Neuberger Berman to implement its process, investment strategy and risk management policies. No representations are made as to the accuracy of such estimates or projections or that such projections will be realised. Actual events or conditions are unlikely to be consistent with, and may differ materially from, those assumed.
An investment in the Company involves risks, with the potential for above average risk, and is only suitable for people who are in a position to take such risks. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of any investment, and should consult its own legal counsel and financial, actuarial, accounting, regulatory and tax advisers to evaluate any such investment. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment in the Company should not constitute a substantial proportion of an investor's portfolio and may not be appropriate for all investors. Diversification and asset class allocation do not guarantee profit or protect against loss.
Past performance is not a reliable indicator of current or future results. The value of investments may go down as well as up and investors may not get back any of the amount invested. The performance data does not take account of the commissions and costs incurred on the issue and redemption of units.
The value of investments designated in another currency may rise and fall due to exchange rate fluctuations in respect of the relevant currencies. Adverse movements in currency exchange rates can result in a decrease in return and a loss of capital.
Tax treatment depends on the individual circumstances of each investor and may be subject to change, investors are therefore recommended to seek independent tax advice.
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The Company's shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States. The shares may not be offered, sold, resold, pledged, delivered, distributed or otherwise transferred, directly or indirectly, into or within the United States, or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act). No public offering of the shares is being made in the United States.
The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act") and, as such, holders of the shares will not be entitled to the benefits of the Investment Company Act. No offer, sale, resale, pledge, delivery, distribution or transfer of the shares may be made except under circumstances that will not result in the Company being required to register as an investment company under the Investment Company Act. In addition, the shares are subject to restrictions on transferability and resale in certain jurisdictions and may not be transferred or resold except as permitted under applicable securities laws and regulations. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdictions.
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