NB Distressed Debt Invest. Fd. Ltd Portfolio Update - Extended Shares (9078C)

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RNS Number : 9078C

NB Distressed Debt Invest. Fd. Ltd

21 April 2017

21 April 2017

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. Prior to the expiry of the investment period, distributions were made to reflect capital profits arising from the exit of any assets attributable to Extended Life Shares. Including the $10.5 million capital distribution described below, $158.6 million (equivalent to 44% of original capital) has been distributed (income by way of dividend and capital by way of redemption) to shareholders since the realisation phase for this share class.

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

NAV increased in the quarter due to continued progress with restructurings and resolutions. However, liquidity in distressed debt markets remains strained as investment banks continue to pull back their proprietary investing activities due to regulatory changes. As a result, we are seeing wider bid / ask spreads and a greater mark-to-market impact on the portfolio. Ultimately, we believe value in the investments within the portfolio will be realised via liquidity events (i.e. sale to a strategic buyer, refinancing or IPO). Access to capital markets significantly improves once an asset or company's balance sheet has been restructured and / or operations have been stabilised.

NBDX had four exits during the quarter, which had a total return (income and capital gains over the life of the investments) of $8.9 million. Three of the exits were final returns of capital on long-term private equity positions. NBDX generated net cash during the quarter of $9.9 million, made up of $5.7 million from exits and $4.2 million from portfolio activity (principal repayments and distributions). During the quarter, the Board approved and paid a distribution to shareholders via a share redemption of $10.5 million. Cash distributed to investors over the life of the fund totals $158.6 million (equivalent to 44% of original capital). At quarter-end, the ratio of total value (distributions, dividends, share buy-backs and current NAV) to original capital was 105%.

Portfolio Update

NBDX's NAV increased by 2.80% during the quarter, ending March with NAV per share of $1.0253 compared with $0.9974 at the end of December, due primarily to improving market conditions and specific events described below. An increase in value of a shipping investment from improvements in shipping charter rates was offset by declines in energy-related investments. The portfolio consists of 35 issuers across 14 sectors. The largest sectors were lodging & casinos, shipping, commercial mortgage, utilities and oil & gas. Certain notable corporate events involving NBDX's existing investments are highlighted below(1:)

-- Private equity of a lodging and casino investment distributed cash of $0.45 / share from cash generated from operations. This represents the first distribution for this investment. We are continuing to work towards a sale of this property.

-- Secured bank debt in a portfolio of Australian wind farms rose during the quarter as local power prices and the company's operating performance both improved. Post quarter-end, the company announced plans to raise additional equity to fund new projects and increase balance sheet flexibility, potentially to facilitate a global refinancing of its debt facilities.

Significant Value Change (approximately 0.5% NBDX NAV or +/- $1,000,000)(2)

 
 Industry   Instrument   Q117 Total     Comment 
                          Return 
---------  -----------  -------------  ------------------------ 
 Shipping   Bank debt    $1.9 million   Increase in ship 
                                         values and operational 
                                         improvement 
---------  -----------  -------------  ------------------------ 
 

Exit 42

NBDX invested $3.8 million to purchase a senior construction loan secured by 99 condominium units located just 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 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 lenders. Cash received on this investment was $5.1 million with total return on the investment for NBDX of $1.3 million over 67months. IRR was 10% and ROR was 34%.

Exit 43

NBDX invested $15.3 million in the secured bank debt of a U.S. independent power producer with assets across the U.S. Due to historically low natural gas prices, the company experienced depressed cash flows that forced it to file a pre-packaged plan of reorganisation, which exchanged secured bank debt into private equity. Eighteen months after the filing, the company announced a sale of substantially all of its assets to a U.S. energy retailer. The transaction ultimately closed in February 2017 when the final disbursements from escrow were paid to equity holders. Continued low natural gas prices and resulting low power prices impacted the sale price for the company. Total cash received was $16.7 million and the total return for this investment was $1.4 million with an IRR of 3% and a ROR of 9%. NBDX held the investment for 69 months.

Exit 44

NBDX invested $12.0 million in the post-reorganised private equity of an eastern U.S. combined cycle gas turbine power plant. At the time of the purchase, NBDX believed that power prices in the market would improve and the plant would be sold at an attractive valuation above our purchase price. In August 2016, it was announced that the plant was being sold to a large, public, U.S. independent power producer. The bulk of the transaction proceeds were paid in early 2016 while the final escrow release was received in Q1 2017. Total cash received was $17.3 million and total return on this investment was $5.3 million over a 74-month holding period, resulting in an IRR of 8% and ROR of 44%.

Exit 45

NB distressed funds collectively purchased a 50% interest of an existing joint venture in an aircraft financing company. Invested capital for all funds was $11.875 million (NBDX invested $3.8 million). We purchased the interest from a fund that sought to provide liquidity to its investors who needed to exit the investment. Our JV partner was one of the largest independent providers of aviation services globally and they acted as the servicer of the entity. At the time of our investment the joint venture owned eight 737-400s (vintage 1992-97). Six of the aircraft were sold on installment sale to an independent Mid-Eastern airline and two were leased to airlines in South Eastern Asia. The planes on installment sale were exited at various points in time in accordance with the terms of the sale agreements. One of the leased aircraft was sold to the lessee. The remaining aircraft was sold following a lease termination due to payment default and repossession by the servicer. Total return on this investment for NBDX was $0.9 million, with initial cash invested of $3.8 million and total cash received over the life of the investments $4.7 million. IRR on the investment was 31% over 24 months and ROR was 25%.

 
 Exit   Entry          Exit Price     Total          Holding     IRR   ROR 
         Price                         Return         Period 
-----  -------------  -------------  -------------  ----------  ----  ---- 
  42    $3.8 million   $5.1 million   $1.3 million   67 months   10%   34% 
-----  -------------  -------------  -------------  ----------  ----  ---- 
           $15.3          $16.7 
  43       million        million     $1.4 million   69 months   3%    9% 
-----  -------------  -------------  -------------  ----------  ----  ---- 
           $12.0          $17.3 
  44       million        million     $5.3 million   74 months   8%    44% 
-----  -------------  -------------  -------------  ----------  ----  ---- 
  45    $3.8 million   $4.7 million   $0.9 million   24 months   31%   25% 
-----  -------------  -------------  -------------  ----------  ----  ---- 
 

Distributions

During the first quarter, the Board announced a capital distribution of $10.5 million. This brings total distributions (capital and income by way of dividend) to $158.6 million, equivalent to 44% of original capital.

Share Buy-Backs

NBDX purchased 392,868 shares during the quarter under the discount control policy at a cost of $368,490 and average discount of 6.9%(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/9078C_-2017-4-20.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                                                         [phone] 

Nick Henderson

Charles Gorman

Rob Bailhache

_____________________________________________________

Data as at 31 March 2017. 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. 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.

(c) 2017 Neuberger Berman Ref: 97460

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The company news service from the London Stock Exchange

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April 21, 2017 02:00 ET (06:00 GMT)