NB Distressed Debt Invest. Fd. Ltd Portfolio Update - Ordinary Shares (9076C)

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RNS Number : 9076C

NB Distressed Debt Invest. Fd. Ltd

21 April 2017

21 April 2017

NB Distressed Debt Investment Fund Limited

Portfolio Update - Ordinary 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 10 June 2013, the investment period of the NBDD Share Class ("NBDD") expired and the assets of NBDDIF attributable to the Ordinary Shares were placed into the harvest period. To date, $111.2 million (equivalent to 89% of original capital) has been approved for distribution (income by way of dividend and capital by way of redemption) to shareholders since the realisation phase for this share class.

The Ordinary Share Class is one of three classes of shares in NBDDIF. The others are the Extended Life Share Class and the New Global Share Class, which both offered exposure to new opportunities in this asset class beyond 10 June 2013. The Extended Life Share Class was subject to an investment period which ended on 31 March 2015 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.

NBDD had three exits during the quarter, which generated a total return (income and capital gains over the life of the investments net of taxes) of $2.4 million. All three exits were final returns of capital on three long-term private equity positions. NBDD generated cash during the quarter of $1.6 million, consisting of $0.6 million from exits and $1.0 million from portfolio activity (principal repayments, distributions and dividends). The ratio of total value (capital distributions, dividends and current NAV) to original capital was unchanged at 119% of original capital at quarter-end.

Portfolio Update

NBDD's NAV increased by 1.5% over the quarter. NBDD ended the quarter with NAV per share of $1.0633 compared with $1.0478 at the end of December. Unrealised gains in the secured bank debt of an Australian energy investment and the private equity of a European packaging company were offset by an unrealised loss in the private equity of a U.S. utility company. The portfolio consists of 19 issuers across 12 sectors. Most investments were relatively flat during the quarter but certain notable events are highlighted below(1) :

-- Private equity of a lodging and casino company 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% of NBDD NAV or +/- $200,000)(2)

 
 Industry       Instrument       Q117 Total Return   Comment 
-------------  ---------------  ------------------  ------------------------- 
 Utilities      Bank debt        $0.4 million        Operational improvements 
                                                      at company 
-------------  ---------------  ------------------  ------------------------- 
 Containers     Private equity   $0.3 million        Operational improvements 
  & packaging                                         at company 
-------------  ---------------  ------------------  ------------------------- 
 Utilities      Private equity   ($0.2 million)      Decline in energy prices 
-------------  ---------------  ------------------  ------------------------- 
 

Exit 35

NBDD invested $1.5m 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 the investment was $2.0 million with total return on the investment for NBDD of $0.5 million over 67 months. IRR was 10% and ROR was 34%.

Exit 36

NBDD invested $4.2 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 on the investment was $4.1 million and the total return for this investment was ($84,000) with an IRR of (1%) and a ROR of (2%)%. NBDD held the investment for 69 months.

Exit 37

NBDD invested $4.7 million in the post-reorganised private equity of an eastern U.S. combined cycle gas turbine power plant. At the time of the purchase, NBDD 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 $6.7 million and total return on this investment was $2.0 million over a 74-month holding period, resulting in an IRR of 8% and ROR of 45%.

 
 Exit   Cash Invested   Cash Received   Total Return     Holding Period   IRR   ROR 
-----  --------------  --------------  ---------------  ---------------  ----  ---- 
  35    $1.5 million    $2.0 million     $0.5 million      67 months      10%   34% 
-----  --------------  --------------  ---------------  ---------------  ----  ---- 
  36    $4.2 million    $4.1 million    ($0.1 million)     69 months      -1%   -2% 
-----  --------------  --------------  ---------------  ---------------  ----  ---- 
  37    $4.7 million    $6.7 million     $2.0 million      74 months      8%    45% 
-----  --------------  --------------  ---------------  ---------------  ----  ---- 
 

Distributions

There were no distributions during the first quarter. Total distributions to date are $111.2 million.

Factsheet

An accompanying factsheet on the information provided above can be found here http://www.rns-pdf.londonstockexchange.com/rns/9076C_-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.

-S-

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 NBDD.

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 NBDD investment or a change in NBDD'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.

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: 97461

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