2020 INTERIM REPORT

NB DISTRESSED DEBT INVESTMENT FUND LIMITED

2020 Interim Report

 

Unaudited Consolidated Interim Financial Statements

For the six month period ended 30 June 2020

 

COMPANY OVERVIEW | Features

 

Features

 

NB Distressed Debt Investment Fund Limited (the "Company")

The Company is a closed-ended investment company incorporated and registered in Guernsey on 20 April 2010 with registration number 51774. The Company is governed under the provisions of the Companies (Guernsey) Law, 2008 (as amended) (the "Law"), and the Registered Collective Investment Scheme Rules 2018 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 trades on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE").

The Company is a member of the Association of Investment Companies (the "AIC") and is classified within the Debt - Loans & Bonds Category.

 

Investment Objective

 

The Company's primary objective is to provide investors with attractive risk-adjusted returns through long-biased, opportunistic exposure to stressed, distressed and special situation credit-related investments while seeking to limit downside risk by, amongst other things, focusing on senior and senior secured debt with both collateral and structural protection.

 

Investment Policy

 

More information on the Company's investment policy is provided below of the Annual Report and Financial Statements for the year ended 31 December 2019.

 

Alternative Investment Fund Manager ("AIFM") and Manager

 

Investment management services are provided to the Company by Neuberger Berman Investment Advisers LLC (the "AIFM") and Neuberger Berman Europe Limited (the "Manager"), collectively the "Investment Manager". The AIFM is responsible for risk management and discretionary management of the Company's Portfolio and the Manager provides, amongst other things, certain administrative services to the Company.

 

Share Capital

 

At 30 June 2020 the Company's share capital comprised the following¹:

 

Ordinary Share Class ("NBDD")

15,382,770 Ordinary Shares, none of which were held in treasury.

 

Extended Life Share Class ("NBDX")

82,495,074 Extended Life Shares, none of which were held in treasury.

 

New Global Share Class ("NBDG")

42,929,950 New Global Shares, none of which were held in treasury.

 

₁ In addition the Company has two Class A Shares in issue. Further information is provided in the Capital Structure section of this report below.

 

For the purposes of efficient portfolio management, the Company has established a number of wholly-owned subsidiaries domiciled in the US, the Cayman Islands and Luxembourg. All references to the Company in this document refer to the Company together with its wholly-owned subsidiaries.

 

Non-Mainstream Pooled Investments

 

The Company currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority's ("FCA") rules in relation to non-mainstream pooled investment ("NMPI") products and intends to continue to do so for the foreseeable future.

 

The Company's shares are excluded from the FCA's restrictions which apply to NMPI products.

 

Company Numbers

 

Ordinary Shares

LSE ISIN code: GG00BDFZ6F78

 

Extended Life Shares

LSE ISIN code: GG00BMY71631

 

New Global Shares

LSE ISIN code: GG00BMY71748

 

Legal Entity Identifier

YRFO7WKOU3V511VFX790

 

Website

www.nbddif.com

 

 

COMPANY OVERVIEW | Capital Structure

Capital Structure 

 

The Company's share capital consists of three different share classes, all of which are in the harvest period: the Ordinary Share Class; the Extended Life Share Class; and the New Global Share Class. These share classes each have different capital return profiles and, in one instance a different geographical remit. In addition, the Company has two Class A Shares in issue. While the Company's share classes are all now in harvest, returning capital to shareholders, the Company's corporate umbrella itself has an indefinite life to allow for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a move, although the Company has no current plans to create new share classes. Each share class is considered in turn below.

               

Ordinary Share Class

 

NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDD expired on 10 June 2013.

 

Voting rights:                                          Yes

Denomination:                                        US Dollars

Hedging:                                                 Portfolio hedged to US Dollars

Authorised share capital:                       Unlimited

Par value:                                               Nil

 

Extended Life Share Class

 

A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where the majority of shareholders voted in favour of a proposed extension.

 

Following this meeting and with the NBDD shareholders' approval of the extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares were issued to 72% of initial NBDD investors who elected to convert their NBDD Shares to NBDX Shares. NBDX had a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDX expired on 31 March 2015.

 

Voting rights:                                          Yes

Denomination:                                        US Dollars

Hedging:                                                 Portfolio hedged to US Dollars

Authorised share capital:                       Unlimited

Par value:                                               Nil

 

New Global Share Class

 

NBDG was created on 4 March 2014 and had a remit to invest in the global distressed market with a focus on Europe and North America. The investment period of NBDG expired on 31 March 2017.

 

Voting rights:                                          Yes

Denomination:                                        Pound Sterling

Hedging:                                                 Unhedged portfolio

Authorised share capital:                       Unlimited

Par value:                                               Nil

 

Class A Shares

 

The Class A Shares are held by a trustee pursuant to a purpose trust established under Guernsey law. Under the terms of the Trust Deed the Trustee holds the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company but the Trustee shall only have the right to attend and vote at general meetings of the Company when there are no other Shares of the Company in issue.

 

Voting rights:                                          No

Denomination:                                        US Dollars

Authorised share capital:                       10,000 Class A Shares

Par value:                                               US Dollar $1

 

 

2020 INTERIM PERFORMANCE REVIEW | Financial Highlights

Financial Highlights

Key Figures

At 30 JUNE 2020 (unaudited)	Ordinary Share Class	Extended Life Share Class	New Global Share Class	Aggregated
Net Asset Value ("NAV") ($ millions)	10.5	58.5	32.5	101.5
NAV per Share ($)	0.6845	0.7087	0.7568	-
Share Price ($)	0.655	0.48	0.62711	-
NAV per Share (£)	-	-	0.6125	-
Share Price (£)	-	-	0.5075	-
Premium /(Discount) to NAV per Share	(4.31%)	(32.27%)	(17.14%)	-
Portfolio of Distressed Investments ($ millions)	6.4	48.1	29.9	84.4
Cash and Cash Equivalents ($ millions)	4.2	20.0	15.0	39.2
Total Expense Ratio ("TER")2	2.24%	2.23%	2.41%	-
Ongoing Charges 3	2.16%	2.13%	2.21%	-
At 31 December 2019 (AUDIted)	Ordinary Share Class	Extended Life Share Class	New Global Share Class	Aggregated
Net Asset Value ("NAV") ($ millions)	14.0	105.8	79.3	199.1
NAV per Share ($)	0.9086	0.9266	1.1047	-
Share Price ($)	0.845	0.735	0.94321	-
NAV per Share (£)	-	-	0.8339	-
Share Price (£)	-	-	0.712	-
Premium /(Discount) to NAV per Share	(7.00%)	(20.68%)	(14.62%)	-
Portfolio of Distressed Investments ($ millions)	13.2	102.8	76.8	192.8
Cash and Cash Equivalents ($ millions)	1.9	1.6	2.4	5.9
Total Expense Ratio ("TER")2	2.15%	2.21%	2.31%	-
Ongoing Charges 3	2.10%	2.11%	2.14%	-

 

¹ Stated in US Dollars, the £ price as at 30 June 2020 and 31 December 2019 converted to US Dollars using respective period/year end exchange rates.

² The TERs represent the Company's management fees and all other operating expenses, as required by US Generally Accepted Accounting Principles ("US GAAP"), expressed as a percentage of average net assets.

³ In the year to 30 June 2020, the Company's annualised Ongoing Charges were 2.15%. This figure is based on an expense figure for the year to 30 June 2020 of $1,771,494. This figure, which has been prepared in accordance with AIC guidance represents the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets. No performance fees were payable as at 30 June 2020. The Ongoing Charges by share class are disclosed above.

 

Summary of Value in Excess of Original Capital Invested

 

At 30 June 2020	Ordinary Share Class ($)	Extended Life Share Class ($)	New Global Share Class (£)
Original Capital Invested	(124,500,202)	(359,359,794)	(110,785,785)
Total Capital Distributions	129,627,394	259,844,033	42,460,798
Total Income Distributions 1	3,166,835	14,896,010	2,685,521
Distributions as % of Original Capital	107%	76%	41%
Total Buybacks	-	11,238,074	10,055,842
NAV	10,530,249	58,461,924	26,294,504
Total of NAV Plus Capital and Income Returned ("Value")	143,324,478	344,440,041	81,494,858
Value in Excess of Original Capital Invested	18,824,276	(14,919,753)	(29,290,927)
Value as % of Original Capital Invested	115%	96%	74%

 

At 31 December 2019	Ordinary Share Class ($)	Extended Life Share Class ($)	New Global Share Class (£)
Original Capital Invested	(124,500,202)	(359,359,794)	(110,785,785)
Total Capital Distributions	129,627,394	236,873,855	24,473,845
Total Income Distributions 1	3,166,835	14,896,010	2,685,521
Distributions as % of Original Capital	107%	70%	25%
Total Buybacks	-	10,255,281	9,346,306
NAV	13,976,415	105,771,674	59,862,782
Total of NAV Plus Capital and Income Returned ("Value")	146,770,644	367,796,820	96,368,454
Value in Excess of Original Capital Invested	22,270,442	8,437,026	(14,417,331)
Value as % of Original Capital Invested	118%	102%	87%

 

¹ By way of dividend

 

A detailed breakdown of the Company's distributions is provided on the Company's website at www.nbddif.com under "Investor Information", "Capital Activity".

 

2020 INTERIM PERFORMANCE REVIEW | Chairman's Statement

 

Chairman's Statement

 

Dear Shareholder,

 

The six-month period ended 30 June 2020 was one of near unprecedented economic and social disruption but, notwithstanding, the Company delivered further capital distributions to the shareholders of the NBDX and NBDG share classes consistent with the now well-established and orderly realisation of the portfolios. With each share class in its harvest period, we continue to seek to balance the pace of exits and the value achieved for shareholders as we return capital to our investors. As a reminder the Ordinary class shareholders will no longer receive capital distributions until such time as all final assets attributable to them have been realised to ensure compliance with UK regulations.

 

Company Performance

                                                                        

By the 30 June 2020, the Company had returned a total of $132.8m or 106.7% of NBDD investors' original capital of $124.5m, $251.7m or 70.06% of NBDX investors' original capital of $359.4m and £27.1m or 24.52% of NBDG investors' original capital of £110.8m. Additionally, $0.05m was spent on buying back NBDX shares and £11.5m was spent on buying back NBDG shares in a manner accretive to net asset value ("NAV"). The Board continually reviews the most appropriate means to return capital to shareholders to maximise the benefit to shareholders and we look forward to reporting further realisations in the coming quarters and the subsequent distribution of those proceeds on the receipt of the funds.

 

On 17 June 2020, we announced a further capital distribution of $10.5m to our NBDX shareholders and £10.5m to our NBDG shareholders which was paid to the NBDX and NBDG shareholders on 10 July 2020.

 

Securing the balance between the pace of exits and the value for shareholders is an active exercise. In many instances, assets will need intense management to realise their full potential. In response to the market improvements post the March lows the Investment Manager realised all the remaining holdings of listed equities so as to safeguard against any further market declines. The Board continues to monitor all costs to ensure that they are appropriate as we are conscious that shareholders may be concerned about the impact of costs on a reducing portfolio during the harvest period.

 

The balance between capital distributions and buybacks is nuanced. Our policy continues to be to try to monitor and manage the share price discount to NAV in a way that is accretive to those shareholders who do not wish to sell.

 

Annual General Meeting ("AGM") Results

 

We were pleased to see that shareholders voted overwhelming in favour of all resolutions proposed at our AGM held on 25 June 2020 and would like to take the opportunity to thank you all for your votes and support.

 

Brexit

 

As previously reported in our annual report, Brexit has not impacted our operations in any material manner and having reviewed the portfolio extensively, we do not believe there is any significant impact from Brexit at the end of the transition period. Shareholders are reminded that the NBDD and NBDX Portfolios are US Dollar denominated and any non-US exposure is hedged back to the US Dollars. However, the outcome of Brexit has not had a material direct impact on these Portfolios. NBDG, on the other hand, is a Pound Sterling denominated, but unhedged, share class with a broader geographic remit than the other two share classes and the Board expects some continued volatility in the currency markets, which in turn would translate into volatility in the value of NBDG's non-Sterling assets. At the time of writing, uncertainty remains around the future relationship between the United Kingdom and the European Union.

 

COVID-19

 

As reported at the time of our Annual Report, the world has experienced unprecedented times as a result of the COVID-19 pandemic and the value of many of our assets have been negatively affected. I am pleased to be able to report that our key service providers have continued to provide services to the Company throughout the pandemic and thank them for their efforts.

 

The various valuation methodologies we use to value your portfolio's holdings have been reviewed and we consider that they remain appropriate for determining values at any given point in time. However, the timing of the orderly realisation of these assets is less certain and the quantum of the proceeds therefrom is difficult to predict. Our objectives will remain the same; to maximise the benefit to investors during this harvest period and to continue to provide updated information regarding asset values.

 

Outlook

 

As reported in the annual report the Ordinary class of shares will be the first to commence the final wind up process, followed by the Extended share class and then the New Global share class. As is normally the case with investment companies, as opposed to those with commercial undertakings, this does not currently have any material impact on the Company's ability to continue as a going concern or remain viable. However, the whole process must be managed in a way that ensures compliance with UK regulations.

 

The Extended and Global classes will continue to distribute until their net assets are reduced to approximately $34.4m and £8.1m respectively. In certain cases, the cash associated with these share classes will need to remain in underlying corporate vehicles while tax and other matters relating to those vehicles are concluded. We will keep investors appraised of developments in respect of the remaining assets.

 

We had previously indicated that we expect the final distribution of the Ordinary share class to be made during the course of this year and that remains the case. The wind up of the other two classes will take a little longer but we hope to complete the realisation process in the next couple of years. As noted earlier, upheaval in financial markets and global trade uncertainty may impact these timings and we will keep shareholders updated via the quarterly fact sheets.

 

We have announced that with effect from 13 September 2020 Jefferies International Limited will replace Stifel Nicolaus Europe Limited ("Stifel") as sole broker and financial adviser to the Company and I would like to take this opportunity to thank Stifel for their services.

 

On behalf of the Board, I would like to thank our longstanding shareholders for your support of our Company. We look forward to updating you further on investment realisations throughout the remainder of the year.

 

 

John Hallam

Chairman

26 August 2020

 

 

2020 INTERIM PERFORMANCE REVIEW | Investment Manager's Report

 

Investment Manager's Report

 

Ordinary Share Class

 

Summary

 

During the first half of 2020 the NAV per share decreased by 24.7%. We continued to see significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations. The long term effects of COVID-19 on the global economy remain unknown at this time. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable, but there is one asset we are working through which will determine the final distribution date. The Investment Manager is evaluating options to wind down the share class. For regulatory reasons, the final 10% of the total return (NAV plus cumulative distributions) in respect of any class of participating shares in NB Distressed Debt Investment Fund Limited ("NBDDIF") will be returned to shareholders with a final compulsory redemption of all of the outstanding shares of that class. As such, there will be no further distribution for NBDD until the final distribution to investors and the wind-down of the share class.

 

Portfolio Update

 

NBDD ended the first half of 2020 with a NAV per share of $0.6845 compared to $0.9086 at end of 2019. The NAV decrease was principally driven by lower prices in the investments in light of the COVID-19 crisis and realised losses in exits of public equities. At 30 June 2020, 93% of NBDD's NAV was invested in distressed assets (including cash, receivables and net payables) with 7% held in cash net of payables (see table below). Cash continues to build as assets are realised. The portfolio consisted of 7 issuers across 6 sectors. The largest sector concentrations were in surface transportation, financial intermediaries and packaging.

 

Cash Analysis
Balance Sheet - Cash	$4.2m
Collateral cash	($3.5m)
Other payables	($0.0m)
Total available cash	$0.7m

 

 

Notable events below describe activity in the investments during the first six months of 2020:

 

·     During the period, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company does not expect to reorganise and has begun a sales process for the various business units. The valuation impact was a ($1.1m) unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision to not reorganise and sell off the business units.

·     The Company completed the exit of all public equities.

 

Significant Price Movement during first half of 2020 (approximately 1% of NBDD NAV or $100,000)

 

INDUSTRY	INSTRUMENT	TOTAL RETURN  (US DOLLARS MILLIONS)	COMMENT
Auto Components	Private Note	(1.1)	Company filed for Chapter 11 bankruptcy and intends to sell business units and not reorganise.
Surface Transport	Total Return Swap	(0.8)	Loss due to FX movement which was offset by FX hedge.
Containers & Packaging	Private Equity	(0.4)	Profitability affected by COVID-19 related business slowdown.
Financial intermediaries	Private Note	(0.2)	Underlying bonds decreased with effects from COVID-19.

 

 

Exits

 

During the first half of the year, we saw four exits, which generated a total return of $(3.4m). This brings the total number of exits since inception in NBDD to 49, with total return of $40.2m. Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

The partial realisations generated a total return of $(0.5m) as of 30 June 2020. Detailed descriptions of the partial realisations are at the end of this report.

 

Distributions

 

To date, $132.8m or 107% of original capital has been distributed to investors in the form of capital distributions via redemptions and income dividends. Total value available to investors including NAV and all distributions paid is $143.3m (115% of original capital). As explained above, for regulatory reasons, the final 10% of the total return (NAV plus cumulative distributions) in respect of any class of participating shares in NBDDIF will be returned to shareholders with a final compulsory redemption of all of the outstanding shares of that class. The next distribution for NBDD will be the final distribution to investors and will wind down the share class. Our current expectation is to wind down the share class as soon as practicable. However there is one asset we are working through which will determine the final distribution date. We will continue to update investors as we gain clarity on the realisations.

 

 

Extended Life Share Class

Summary

 

During the first six months, the NAV per share decreased by 23.5%. We continued to see significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations and economic recovery. The effects of COVID-19 on the global economy remain unknown at this time. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable.

 

Portfolio Update

 

NBDX ended the first half of the year with a NAV per share of $0.7087 compared to $0.9266 at end of 2019. At 30 June 2020, 98% of NBDX's NAV was invested in distressed assets (including cash receivables and net payables held in subsidiaries) with 2% held in cash (see table below). At 30 June 2020, NAV decreased 23.5% during the period principally due to losses in public equities and unrealised losses in the existing portfolio with the impact of COVID-19. With the exit of the public equities, the NBDX portfolio consisted of 13 issuers across 10 sectors. The largest sector concentrations were in surface transportation, shipping, lodging & casinos, and financial intermediaries.

 

Cash Analysis
Balance Sheet - Cash	$20.0m
Cash held in wholly-owned subsidiary accounts	$0.0m
Collateral cash	($7.9m)
Cash held for income distribution payable	($10.5m)
Other payables	($0.3m)
Total available cash	$1.3m

 

Notable events below describe activity in the investments during first half of 2020:

·     During the period, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company does not expect to reorganise and has begun a sales process for the various business units. The valuation impact was a ($9.7m) unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision to not reorganise and sell off the business units.

·     The Company completed the exit of all public equities.

·     Non Ferrous Metals investment - The sale of the company was completed and private shares tendered for cash.

 

Significant Price Movements during first half of 2020 (approximately 1% of NBDX NAV or $600,000)

 

INDUSTRY	INSTRUMENT	TOTAL RETURN  (US DOLLARS MILLIONS)	COMMENT
Auto Components	Private Note	(9.7)	Company filed for Chapter 11 bankruptcy and intends to sell business units and not reorganise.
Financial intermediaries	Private Note	(3.0)	Underlying bonds decreased with effects from COVID-19.
Surface Transport	Total Return Swap	(2.1)	Loss due to FX movement which was offset by FX hedge.
Shipping	Bank debt Investments	(1.3)	Decline in vessel valuations due to global downturn related to COVID-19.
Containers & packaging	Private Equity	(1.2)	Profitability affected by COVID-19 related business slowdown.

 

   

Exits

 

During the first half of the year, we saw nine exits for NBDX, which generated a total return of $(37.7m). This brings the total number of exits since inception in NBDX to 66 with total return of $77.7m. Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

The partial realisations generated a net gain of $(1.2m) in the first half of the year and $15.4m over the life of the Company. Detailed descriptions of the partial realisations are at the end of this report. 

 

Distributions

 

During the first six months of 2020, NBDX approved distributions of $23m. The company made a $12.5m capital distribution via redemption of shares which, when combined with a further distribution of $10.5m approved in the second quarter and paid in July 2020, gives total distributions (dividends, redemptions and buy-backs) of $286.1m or 80% of original capital. Total value available to investors including NAV and all distributions paid is $344.4m or 96% of original capital. With the uncertainty as to how long the economic downturn will last, certain realisations in NBDX have been delayed. For regulatory reasons, the final 10% of 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. The Investment Manager is committed to realising the investments in a timely manner to distribute cash to investors as soon as possible.

 

Share Buybacks

 

During the first six months of 2020, NBDX purchased 1.7m of its own shares under the buyback programme at a cost of $1m and weighted average discount of (27.97%). The shares have been cancelled.

 

 

New Global Share Class

Summary

During the first six months, the NAV per share decreased by 26.5%. We continued to see significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations and economic recovery. The effects of COVID-19 on the global economy remain unknown at this time. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable.

 

Portfolio Update

NBDG ended the first half of 2020 with a NAV per share of £0.6125 compared to £0.8339 at the end of 2019. At 30 June 2020, 94% of NBDG's NAV was invested in distressed assets (including cash receivables and net payables held in subsidiaries) with 6% held in cash (see table below). NAV decreased 26.5% during the quarter principally due to losses in public equities and unrealised losses in the existing portfolio with the impact of COVID-19. With the exit of the public equity investments, the portfolio consisted of 13 issuers across 7 sectors. The largest sector concentrations were in lodging & casinos, commercial mortgage, surface transportation and shipping.

 

Cash Analysis
Balance Sheet - Cash	$15.0m
Cash held in wholly-owned subsidiary accounts	$0.0m
Cash held for income distribution payable	($13.0m)
Other payables	($0.1m)
Total available cash	$1.9m

 

Notable events involving NBDG's investments during the first half of 2020 are below:

·     During the period, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company does not expect to reorganise and has begun a sales process for the various business units. The valuation impact was a (£4.0m) unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision to not reorganise and sell off the business units.

·     The Company completed the exit of all public equities.

·     Non Ferrous Metals investment - The sale of the company was completed and private shares tendered for cash.

 

Significant Price Movements during first half of 2020 (approximately 1% of NBDG NAV or £300,000)

 

INDUSTRY	INSTRUMENT	TOTAL RETURN  (GBP MILLIONS)	COMMENT
Surface Transport	Bank Debt  Investments	0.4	Arbitration progressing during COVID-19.
Lodging & Casinos	Bank Debt  Investments	(1.6)	Hotel shutdown due to COVID-19 quarantine.
Auto Components	Private Note	(4.0)	Company filed for Chapter 11 bankruptcy and intends to sell business units and not reorganise.

 

 

Exits

 

During the first six months of 2020, we saw ten exits, which generated a total return of £(14.4m). This brought the total number of exits since inception to 29 with a total return of £(5.5m). Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

There were no partial realisations in NBDG during the first six months of 2020.

 

Distributions

 

During the first six months of 2020, the company made a £7.5m capital distribution via redemption of shares which, when combined with a further distribution of £10.5m approved in the second quarter and paid in July 2020, gives total distributions (dividends, redemptions and buy-backs) of £55.2m or 50% of original capital. Total value available to investors including NAV and all distributions paid is £81.5m or 74% of original capital. With the uncertainty as to how long the economic downturn will last, certain realisations in NBDG have been delayed. For regulatory reasons, the final 10% of 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. The Investment Manager is committed to realising the investments in a timely manner to distribute cash to investors as soon as possible.

 

Share Buybacks

 

During the first six months, NBDG purchased 1.2m shares under the buyback programme at a cost of £0.7m and weighted average discount of (17.45%). The shares have been cancelled.

 

Summary of Exits across all Share Classes

The total exits during the first half of 2020 can be summarised as follows:

·     NBDD - Four exits

·     NBDX - Nine exits

·     NBDG - Ten exits

 

Exits experienced from inception to date were as follows:

NBDD 49 exits with a total return of $40.2m, IRR of 12% and ROR of 22%

NBDX 66 exits with a total return of $77.5m, IRR of 7% and ROR of 13%

NBDG 29 exits with a total return of (£5.5m), IRR of (4)% and ROR of (5)%

 

The annualised internal rate of return ("IRR") is computed based on the actual dates of the cash flows of the security (purchases, sales, interest and principal pay downs), calculated in the base currency of each portfolio. The Rate of Return ("ROR") represents the change in value of the security (capital appreciation, depreciation and income) as a percentage of the purchase amount. The purchase amount can include multiple purchases.

 

Exit L (Exit 20 for NBDG and Exit 58 for NBDD)

Exit L	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	20	£1.5	£0.2	(£1.3)	(32.3)%	85.2%	59
NBDD	58	$5.7	$0.7	($5.0)	(34.2)%	87.1%	59

 

Exit M (Exit 21 for NBDG and Exit 59 for NBDD)

Exit M	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	21	£1.6	£0.6	(£1.0)	(29.2)%	62.4%	59
NBDD	59	$1.7	$0.5	($1.2)	(30.5)%	68.9%	59

 

 

Exit N (Exit 46 for NBDD and Exit 60 for NBDX)

Exit N	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDD	46	$2.0	$1.6	($0.4)	(23.3)%	(21.0)%	84
NBDX	60	$5.1	$4.0	($1.1)	(23.3)%	(21.0)%	84

 

 

Exit O (Exit 22 for NBDG and 61 for NBDX)

Exit O	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	22	£8.8	£3.4	(£5.4)	(44.2)%	(61.1)%	64
NBDX	61	$7.5	$2.3	($5.2)	(52.9)%	(69.9)%	64

 

 

Exit P (Exit 23 for NBDG, Exit 47 for NBDD and Exit 62 for NBDX)

Exit P	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR			Months Held
NBDG	23	£15.9	£10.9	(£5.0)	(22.1)%	(31.6)%			71
NBDD	47	$3.0	$1.5	($1.5)	(7.1)%	(45.1)%			111
NBDX	62	$10.1	$4.8	($5.3)	(9.1)%	(52.5)%			111

 

 

Exit Q (Exit 24 for NBDG and Exit 63 for NBDX)

Exit Q	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR			Months Held
NBDG	24	£6.2	£5.6	(£0.6)	(2.1)%	(9.4)%			75
NBDX	63	$10.1	$6.8	($3.3)	(7.7)%	(32.1)%			75

 

 

Exit R (Exit 25 for NBDG)

Exit R	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	25	£1.3	£0.8	(£0.5)	(20.1)%	(39.6)%	44

 

Exit S (Exit 26 for NBDG and Exit 64 for NBDX)

Exit S	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	26	£5.8	£9.6	£3.8	11.8%	66.4%	74
NBDX	64	$3.2	$4.9	$1.7	9.0%	53.8%	74

 

Exit T (Exit 27 for NBDG and Exit 65 for NBDX)

Exit T	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	27	£5.4	£4.5	(£0.9)	(3.4)%	(16.5)%	74
NBDX	65	$11.8	$6.8	($5.0)	(9.0)%	(41.8)%	80

 

 

Exit U (Exit 28 for NBDG, Exit 48 for NBDD and Exit 66 for NBDX)

Exit U	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	28	£9.1	£6.7	(£2.4)	(13.5)%	(26.8)%	68
NBDD	48	$1.0	$0.3	($0.7)	(26.6)%	(66.3)%	85
NBDX	66	$19.6	$6.1	($13.5)	(28.4)%	(69.0)%	85

 

 

Exit V (Exit 29 for NBDG and Exit 49 for NBDD)

Exit V	Exit	Cash Invested (millions)	Cash Received (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDG	29	£12.8	£12.0	(£0.8)	(3.7)%	(6.0)%	76
NBDD	49	$8.8	$7.9	($0.9)	(3.4)%	(9.5)%	111

 

 Summary of Partial Realisations across all Share Classes

All partial realisations currently in the portfolio are reported as at 30 June 2020 and it should be noted that their IRR and ROR are likely to be different at the time of the final exit. These were the following partial realisations:

 

·     NBDD - Two

·     NBDX - Two

·    NBDG - None

 

 

Partial Realisation B: NBDD and NBDX

 

NBDD and NBDX invested $7.1m to purchase first lien secured bank debt with attached private equity of an international packaging company. The debt was repaid in full shortly after the purchase with the receipt of $5.8m and the Company retained the equity, receiving dividends of $1.7m during the holding period. During the second quarter the company's sale to a complementary packaging company was announced. NBDX and NBDD elected to receive sale proceeds in cash and newly created shares in the acquirer for a combined value of $4.0m. In the third quarter of 2017, the Company received $1.5m cash as part of the sale proceeds from the disposal completed at the end of the second quarter of 2017 and $1.0m for partial redemption of new shares received in the acquirer. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $0.5m generating a total return of $3.4m as of 30 June 2020. IRR was 25% and ROR was 48% with a holding period of 92 months at 30 June 2020.

 

B	Effective Period	Cash Invested (millions)	Cash Received to Date (millions)	Value of Residual Investment (millions)	Total Return (millions)	IRR	ROR	MonthS Held
NBDD	H1 2017	$2.0	$2.8	$0.1	$1.0	25%	48%	92
NBDX	H1 2017	$5.1	$7.2	$0.4	$2.5	25%	48%	92

 

 

Partial Realisation C: NBDD and NBDX

  

NBDD and NBDX invested $9.2m in preferred equity certificates ("PECs") and private equity of a European packaging company. The PECs were retired in full in 2015 and the company paid dividends on the equity during the holding period. Cash received to date is $23.2m. In the second quarter, the company announced it was purchasing another complementary packaging company (Partial Realisation B, above) and completing a recapitalisation to refinance existing debt, provide cash for the acquisition and pay a dividend to shareholders. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $3.8m, generating a total return of $17.8m as at 30 June 2020. IRR was 52% and ROR was 193% with a holding period of 94 months at 30 June 2020.

 

C	Effective Period	Cash Invested (millions)	Cash Received to Date (millions)	Value of Residual Investment (millions)	Total Return (millions)	IRR	ROR	Months Held
NBDD	H1 2017	$2.6	$6.5	$1.1	$5.0	52%	193%	94
NBDX	H1 2017	$6.6	$16.7	$2.7	$12.8	52%	193%	94

 

 

 

 

Neuberger Berman Investment Advisers LLC             Neuberger Berman Europe Limited

26 August 2020                                                                       26 August 2020

 

 

2020 INTERIM PERFORMANCE REVIEW | Portfolio Information

 

Portfolio Information

 

Ordinary Share Class

 

Top 7¹ Holdings at 30 June 2020

 

Holding	Sector	Purchased Instrument	Status	Country	% of NAV	Primary Asset
1	Surface Transport2	Trade Claim	Defaulted	Brazil	28.7%	Municipal claim
2	Specialty Packaging	Post-Reorg Equity	Post-Reorg	Luxembourg	10.0%	Manufacturing Plant and Equipment
3	Financial Intermediaries	Secured Notes	Post-Reorg	US	4.7%	Residential real estate
4	Specialty Packaging	Post-Reorg Equity	Post-Reorg	Luxembourg	1.4%	Manufacturing/distribution/real estate
5	Building & Development	Secured Loan	Defaulted	US	0.7%	Manufacturing Plant and equipment
6	Auto Components	Secured Loan	Post-Reorg	US	0.2%	Cash & securities
7	Utilities	Secured Loan	Post-Reorg	US	0.0%	Cash & securities
Total					46%

 

 

Sector Breakdown³

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 1 in the associated PDF document.

 
http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf
 

¹ Ordinary Share Class holds seven investments by issuer.

 

² As at 30 June collateral pledged is included in the Surface Transport Market Value.

 

³ Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDD's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.

 

 

Country Breakdown⁴

 

 

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 2 in the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf

 

⁴ Categorisations determined by Neuberger Berman and percentages determined by the Administrator, based on market values at 30 June 2020 and 31 December 2019.

 

⁵ As at 30 June collateral pledged is included in the Brazil Market Value.

 

Extended Life Share Class

 

Top 10 Holdings at 30 June 2020

 

Holding	Sector	Purchased Instrument	Status	Country	% of NAV	Primary Asset
1	Shipping	Secured Loan/Private Equity	Post-Reorg	Marshall Islands	17%	Ships
2	Surface Transport1	Trade Claim	Defaulted	Brazil	11%	Municipal Claim
3	Financial Intermediaries	Secured Notes	Defaulted	US	11%	Cash and Securities
4	Commercial Mortgage	Secured Loan	Defaulted	Netherlands	9%	Commercial Real Estate
5	Lodging & Casinos	Secured Notes	Post-Reorg	US	8%	Hotel/Lodging Real Estate and Casino
6	Oil & Gas	Post-Reorg Equity	Post-Reorg	US	7%	Ethanol Plant
7	Surface Transport	Secured Loan	Defaulted	Spain	7%	Concession
8	Lodging & Casinos	Secured Loan	Defaulted	US	7%	Hotel/Lodging Real Estate and Casino
9	Auto Components	Secured Loan	Post-Reorg	US	5%	Manufacturing Plant and Equipment
10	Specialty Packaging	Post-Reorg Equity	Post-Reorg	Luxembourg	5%	Manufacturing Plant and Equipment
Total					87%

 

 

Sector Breakdown²

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 3 in the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf

 

¹ As at 30 June collateral pledged is included in the Surface Transport Market Value.

 

² Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDX's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.

 

 

Country Breakdown³

 

 

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 4 in the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf

 

 ³ Categorisations determined by Neuberger Berman and percentages determined by the Administrator, based on market values at 30 June 2020 and 31 December 2019.

 

⁴ As at 30 June collateral pledged is included in the Brazil Market Value.

 

 

New Global Share Class

 

Top 8¹ Holdings at 30 June 2020

 

Holding	Sector	Purchased Instrument		Status	Country	% of NAV	Primary Asset
1	Lodging & Casino	Secured Loan/Private Equity		Current	Spain	23%		Hotel/Casino
2	Commercial Mortgage	Secured Loan		Defaulted	Netherlands	20%		Commercial Real Estate
3	Surface Transportation	Secured Loan		Defaulted	Spain	13%		Legal Claim
4	Shipping	Secured Loan/Private Equity		Post-Reorg	Marshall Islands	12%		Ships
5	Lodging & Casino	Secured Notes		Defaulted	US	7%		Hotel/Casino
6	Oil & Gas	Private Equity		Post-Reorg	US	5%		Ethanol Plant
7	Auto Components	Secured Loan		Post-Reorg	US	3%		Manufacturing Plant
8	Utilities	Private Claim		Post-Reorg	US	0%		Power Plants
Total						83%

 

 

Sector Breakdown²   

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 5 in the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf

 

¹ Global Share Class holds eight investments by issuer

 

² Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDG's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.

 

Country Breakdown³

 

 

For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 6 in the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/2637X_1-2020-8-26.pdf

 

 

³ Categorisations determined by Neuberger Berman and percentages determined by the Administrator, based on market values at 30 June 2020 and 31 December 2019.

 

 

GOVERNANCE | Interim Management Report and Directors' Responsibility Statement

 

Interim Management Report and Directors' Responsibility Statement

 

Principal Risks and Uncertainties

The principal risks of the Company are in the following areas:

 

·     investment activity and performance;

·     principal risks associated to harvest periods;

·     level of premium or discount;

·     market price risk;

·     fair valuation of illiquid assets;

·     accounting, legal and regulatory risk; and

·     operational risk.