NB Distressed Debt Invest. Fd. Ltd
29 July 2016
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 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 Life 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. Including the distribution during the quarter described below,
the total amount distributed (including share buy-backs) to investors is approximately $129.5 million or 36% of original capital
up to 30 June 2016.
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 is subject to an investment period which will end on 31 March 2017. Separate
factsheets are produced for those share classes.
Manager Commentary
The surprise result of the UK EU membership referendum, zero and negative sovereign interest
rates, stressed Italian banking balance sheets and the upcoming US presidential elections have all contributed to market
volatility and investor uncertainty through the first six months of 2016. However, market sentiment rebounded from a nadir in
February as prices for energy-related commodities improved, resulting in a recovery of credit and equity markets in the second
quarter.
Since the end of the investment period, NBDX has been able to make a capital distribution in each
quarter and we are pleased to continue to do so. NBDX had two exits in the quarter, generating $12.4 million in cash and
contributing $3.0 million to NAV in the period. NBDX received approximately $7.4 million cash (principal repayments and
distributions) from activity in existing investments. Approximately $19.0 million was distributed to NBDX investors in the second
quarter. To date, $129.5 million or 36% of original capital has been distributed to investors and this brings the ratio of total
value (distributions, share buy-backs and current NAV) to original capital to 101%. We continue to focus on maximising the value
on our portfolio as we work to restructure, realise exits and return capital to NBDX investors. We remain confident about the
investments in the portfolio and hope to generate positive returns from the current valuations.
Portfolio Update
NBDX's NAV increased 5.0% to $0.9999 per share from $0.9523 per share in the second quarter,
driven by credit improvements in energy related investments, a residential condominium investment, a building and development
investment, lodging & casino investments and an announcement of the sale of an aircraft investment. The portfolio is made up
of 43 issuers across 14 sectors. Certain notable corporate events involving NBDX's existing investments are highlighted
below1:
· NBDX's investment in debt secured by a
portfolio of aircraft increased by 15% (net gain of $0.7 million in Q2 16) after the aircraft trust announced the sale of the
portfolio to a strategic buyer. Proceeds from the sale will be used to repay principal through Q3 16.
· A lodging and casino investment tendered
for contingent equity rights simplifying its capital structure to better enable a liquidity event. Cash of $0.3 million received
on the tender and remaining equity appreciated 34% during the quarter.
· The sale of the underlying property in an
infrastructure investment generated a partial repayment of bank debt (cash proceeds of $0.9 million). We are awaiting the final
distribution.
· A shipping investment sought to raise debt
financing with additional equity from existing equity holders and NBDX participated to protect against dilution of equity
investment.
Exit 36
NBDX invested $15.1 million in a private REIT that was formed to buy homes at foreclosure and
build a portfolio of single family rental homes in areas particularly affected by the housing downturn throughout the United
States. We expected that we would obtain a return through a combination of dividends, home price appreciation from a housing
recovery and anticipated a consolidation of the industry from a newly institutionalised real estate asset class. The company
conducted an IPO to convert to a public REIT. We decided to sell our shares after company failed to display the appreciation of
its portfolio since inception, leading to tepid growth in the share price. We ultimately sold our shares for $16.0 million with
$0.4 million of dividend income. Total return from this investment was $1.2 million generating an IRR of 3% and ROR of
8%.
Exit 37
NBDX purchased shares in a mono-line insurance company that was operating in run off in October
2013. We purchased the shares at a substantial discount to shareholder's surplus which we expected to be returned to holders via
dividends and share buybacks. As expected we received dividends in December 2014 and November 2015, respectively. In September
2015 the company received an unsolicited offer from a strategic buyer. We subsequently assisted the company in evaluating the
offer and in running a competitive sales process that resulted in a final sales price in excess of the original offer. We
realised a total return of approximately $4.8 million for an IRR of 81% and a ROR of 292% on the investment.
Exit
|
Cash Invested
|
Cash Received
|
Total Return
|
Holding Period
|
IRR
|
ROR
|
36
|
$15.1 million
|
$16.4 million
|
$1.2 million
|
38 months
|
3%
|
8%
|
37
|
$1.7 million
|
$6.7 million
|
$5.0 million
|
33 months
|
81%
|
292%
|
Total return on all 37 exits is $72.0 million for NBDX over the life of the fund. The weighted
average IRR on the 37 exits is 20% and the weighted average ROR is 27%2.
Significant Value Change (approximately 0.5% NBDX NAV or +/- $1,100,000)3
Industry
|
Instrument
|
Q2 16 Total Return
|
Comment
|
Oil & Gas
|
Private equity
|
$2.7million
|
Improving operations at bio fuels plant
|
Utilities
|
Secured bank debt
|
$1.6million
|
Positive developments in Chap 11 case and improving energy prices
|
Commercial Mortgage
|
Secured bank debt
|
$1.5million
|
Improving sale of residential condominiums
|
Building & Development
|
Private equity
|
$1.4million
|
Positive movement to IPO underlying company by majority owner
|
Lodging & Casinos
|
Private equity
|
$1.3million
|
Improvement in operations and resolution in equity owner dispute
|
Lodging & Casinos
|
Secured bank debt
|
$1.2million
|
Improving operations at underlying properties
|
Shipping
|
Private equity
|
($1.5million)
|
Decline in shipping rates
|
Shipping
|
Secured bank debt
|
($2.0million)
|
Decline in shipping rates and liquidity issues
|
Capital Distribution
During the second quarter, approximately $19.0 million distributions were approved and paid to
holders of NBDX shares by way of a compulsory partial redemption of NBDX shares. To date, $129.5 million or 36% of original
capital has been distributed to investors.
Share Buy-Backs
NBDX purchased 128,726 shares during the second quarter under the discount control policy at a
cost of $119,790 and an average discount to NAV of 5.78%4. 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/5837F_1-2016-7-28.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:
Neustria Partners
+44 (0)20 3021 2580
Nick Henderson
Charles Gorman
Rob Bailhache
_____________________________________________________
Data as at 30 June 2016. 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 above. In addition, certain corporate events may not have been disclosed due
to confidentiality obligations.
2. The terms 'weighted average IRR' and 'weighted average ROR', as used in this factsheet, are
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 or ROR (as applicable) for
the applicable investment exit. For each of IRR and ROR, Neuberger Berman then calculates the sum of the figures calculated in
the prior sentence for all of investment exits for the share class.
3. 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.
4. Source: Stifel Nicolaus Europe Limited.