NB DISTRESSED DEBT INVESTMENT FUND LTD 
By
NB Distressed Debt Investment Fund Limited ("NBDDIF") is a Guernsey-incorporated closed-ended investment company that 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 credit teams in the industry.
The Extended Life Share Class ("NBDX") was created in April 20131 and is subject to an investment period ending on
31 March 2015, following which the assets will be placed into run-off. NBDDIF will seek to return to the holders of Extended Life Shares all net capital profits arising from the exit of any assets attributable to those shares, at least every six months, with the first such distribution to be made in the first quarter of 2014.
The Extended Life Shares are one of two classes of shares in NBDDIF. The other class is the Ordinary Share Class, which is subject to an investment period which ended on 10 June 2013. A separate factsheet is produced for that class.
Summary
We were gratified to see the positive NAV movement achieved in the fourth quarter and 2013 as a whole. In the fourth quarter, we exited three positions, which contributed to the increase in our NAV. The Company will make a capital profits return to NBDX shareholders in the first quarter of 2014. We continue to see significant upside potential in the existing portfolio, which we expect to realise as we restructure and exit investments. We believe the pipeline of distressed debt opportunities remains robust in our sectors of interest.
Portfolio
As at 31 December 2013, 94.1% of NBDDIF Extended Life Share NAV ("NBDX's NAV") was either invested in distressed assets (89.3% of NAV) or allocated to fund the scheduled capital profits return to shareholders (4.8% of NAV). Cash available for new investments and working capital ended the year at 5.9% of NAV. NBDX's NAV per share increased 13.9% in 2013, to $1.2259 from $1.0766 per share. We believe our performance compares favourably with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index, which returned 13.6%3 in 2013 and Bloomberg's BAIF-Distressed Securities benchmark, which returned 11.2%4 over the same period. In the fourth quarter, NBDX's NAV per share increased 1.7%, primarily due to exits and mark-to-market gains on positions which reached key restructuring milestones or made progress post-reorganization. We also added incrementally to existing names and initiated positions in the shipping, lodging & casinos, financial and metals industries. During the quarter, we saw our 18th, 19th and 20th exits since inception, which are described in detail below.
Capital Profits Return
FUND MANAGERSMICHAEL HOLMBERG
25 years investment experience
PATRICK FLYNN
22 years investment experience
KEY STATISTICS (as at December 31, 2013)2NAV Per Share: $1.2259
Share Price: $1.2925
Share Price (Discount) /
Premium vs. NAV 5.43%
Market Cap $455m
KEY INFORMATIONFund Type: Closed-ended
Investment Company
Launch Date: 10 June 2010
Base Currency: USD NAV Frequency: Daily
Domicile: Guernsey
In January 2014, the Board of the Company resolved to return $20.9 million (equivalent to approximately $0.0593 per
share) to holders of NBDX shares by way of a compulsory partial redemption of NBDX shares. The current return comprises the total capital profit from investment exits from the NBDX portfolio in the period from 9 April 2013 (the admission date of NBDX shares) through 31 December 2013.
Market Update
We continue to experience an improving environment for distressed debt in our sectors of interest. We believe the
Year End: 31 December Management Fee: 1.5% Bloomberg Ticker: NBDX
ISIN: GG00B9CBV553
pipeline of opportunities in real estate, transportation and energy debt is particularly compelling, both in the U.S. and
Europe. EU banks in particular have increased their disposal of European and U.S. loans and assets to a run-rate of over €60 billion in 2013, versus €46 billion in 2012, €36 billion in 2011 and €11 billion in 20105. However, over €1 trillion of non-performing loans remain on EU bank's balance sheets5. The ECB is scheduled to assume supervisory authority for all euro-area lenders later in 2014. We believe that an ECB-sponsored harmonization of NPL definition across countries may facilitate further recognition and disposal of distressed loans. In the U.S. we continue to see a healthy pipeline of distressed assets in real estate, energy and other asset-intensive sectors.
Exits
In the fourth quarter, we had three exits, bringing our total to 20 since inception. These exits generated $18.7 million of total income and gains for NBDX and included our most profitable exit to date in the life of NBDDIF (Investment 19).
Investment 18: We purchased $14.4 million face value of secured loans at 79.3% of par. The notes were secured by six hotel/casinos, including four in Las Vegas, Nevada. We believed that the debt would likely be refinanced or that in the event of default, we would ultimately own the assets at an attractive valuation. As gaming conditions improved and a refinancing looked increasingly likely, we sold a portion of the position in the secondary market at levels higher than
Website: www.nbddif.com
DIRECTORSRobin Monro-Davies (Chairman) Talmai Morgan
John Hallam
Christopher Sherwell Michael Holmberg Patrick Flynn
our purchase price. The remaining position was repaid in a refinancing of the notes in the fourth quarter 2013. Total
income from this investment was $4.1 million.
Investment 19: We purchased $18.3 million of a secured term loan facility at 62.5% of par. The term loan was secured by trucks and real estate of a transportation and logistics company. At the time of purchase, the company was over-levered and needed to restructure its debt. We believed that our position was covered by the value of the collateral in a liquidation scenario, yet provided significant upside potential in the event of a successful reorganization. Following an out-of-court restructuring, we received a mix of new debt and equity instruments. We added to our position after these instruments traded lower post-reorganization. During 2012 and 2013 the company experienced improved operational results which resulted in a substantial increase in market value across the capital structure. We exited our position in the secondary market resulting in total income from the investment of $11.5 million.
Investment 20: We purchased $65.8 million face value of defaulted secured notes at an average price of 23.2% of par. The bonds were issued by a company which owned and operated petroleum refineries across Europe. At the time of initial purchase the company was bankrupt and we believed that in liquidation the proceeds from asset sales would result in strong recoveries for bondholders. The results of the sale of a key asset of the company were below expectations, and the secondary price of the bonds decreased significantly. We purchased additional bonds at these lower levels which reduced our overall cost basis. The liquidation of the company continued and the secondary price of the bonds subsequently moved up to levels closer to our estimate of ultimate recoverable value. We sold the position in the secondary market resulting in total income from this investment of $3.1 million.
Data as at December 31, 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDX.
1. The Extended Life Share Class was created in April 2013 when holders of Ordinary Shares were invited to convert those shares into Extended Life Shares. The information in this fact sheet therefore relates to the Ordinary Shares up to April 2013 and to the Extended Life Shares thereafter.
2. Source: Bloomberg, except as otherwise noted.
3. The HFRI Distressed/Restructuring Index reflects distressed restructuring strategies which employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings (provided by Hedge Fund Research, Inc.).
4. The BAIF-Distressed Securities Hedge Funds Domiciled Globally Index is one of Bloomberg's Active Indices for Funds (BAIF) used to measure a fund's performance against its peers. This index represents distressed securities hedge funds, domiciled globally.
5. PWC Market Update Report - October 2013
Please see disclaimer on reverse
For Professional Client Use Only
NB DISTRESSED DEBT INVESTMENT FUND LIMITED - EXTENDED LIFE SHARES | December 31, 2013 (continued) EXITSExit Industry Instrument Entry Value1 Exit Value1 Timing Catalyst ROR2 IRR3
18 Lodging & Casinos Secured Loan 79.25% 98.23% 34 months Refinancing 36% 12%
19 Surface Transportation Secured Loan $15.8m $27.3m 41 months Debt Restructuring 73% 26%
20 Oil & Gas Secured Notes 23.17% 27.89% 22 months Liquidation 20% 15%
TOP 10 HOLDINGS4 Holding Industry Purchased Instrument Status Country % of NAV Primary Assets1 Commercial Mortgage Secured Loan Defaulted US 5% Multifamily residential real estate
2 Financial Intermediary Private Notes Post-Reorg US 5% Cash & securities
3 Building & Development Post-Reorg Equity Post-Reorg US 4% Residential real estate
4 Real Estate Development Secured Loan Post-Reorg US 4% Multifamily residential real estate
5 REIT/REOCs Private Equity Current US 4% Residential real estate
6 Utilities Secured Loan Current US 3% Power plants
7 Lodging & Casinos Secured Loan Defaulted US 3% Hotel/lodging real estate
8 Leisure Secured Loan Current US 3% Sports/entertainment stadium
9 Utilities Secured Loan Current Australia 3% Power plants
10 Utilities Secured Loan Defaulted US 3% Power plants
Total 37%
PERFORMANCE51.30
1.25
1.20
1.15
1.10
1.05
Apr-13 May-13 Jun-13 Aug-13 Sep-13 Oct-13 Dec-13
COUNTRY BREAKDOWN6 (%)Share Price NAV
COUPON PAYMENTS (excluding cash)6 SECTOR BREAKDOWN6 (%)PIK
6.3%
Coupon
Paying
20.7%
CURRENCY BREAKDOWN6 (%)USD
Non- Coupon Paying
73.0%
Data as at December 31, 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDX.
1. Actual price information is generally provided where investments have not been converted into other assets.
2. 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.
3. The annualized internal rate of return (IRR) was computed based on the actual dates of the cash flows of the security (purchases, sales, interest, principal paydowns).
4. Source: BNP Paribas - based on market value as at December 31, 2013. Excludes cash and short term investments.
5. Source: Bloomberg.
6. Categorizations determined by Neuberger Berman; percentages determined by BNP Paribas. Please note that irrespective of the "Industry" 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 Industry.
7. Includes cash and accruals.
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 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. © 2014 Neuberger Berman.
EU0180 01/14
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