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.
On 10 June 2013, the Investment Period of the NBDD Ordinary Shares expired. The assets of NBDDIF attributable to the Ordinary Shares were placed into run-off following the expiry of the Investment Period. The net proceeds from the realization of such assets will be distributed to Ordinary Shareholders in such times and amounts as determined by the Board of Directors, with the first such distribution to be made in the first quarter 2014.
The Ordinary Shares are one of two classes of shares in NBDDIF. The other class is the Extended Life Share Class, offering exposure to new opportunities in this asset class beyond 10 June 2013. The Extended Life Share Class is subject to an investment period ending on 31 March 2015. 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 return to NBDD 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.
Portfolio
As at 31 December 2013, 78.1% of NBDDIF Ordinary Share NAV ("NBDD's NAV") was invested in distressed assets and 21.9% of NAV was held in cash and equivalents. The majority of cash (equivalent to 18.5% of NAV) has been
FUND MANAGERSMICHAEL HOLMBERG
25 years investment experience
PATRICK FLYNN
22 years investment experience
KEY STATISTICS (as at December 31, 2013)1NAV Per Share: $1.2189
Share Price: $1.2100
Share Price (Discount) /
Premium vs. NAV (0.73)%
Market Cap $150m
KEY INFORMATION
allocated to fund the scheduled capital return to shareholders. NBDD's NAV per share increased 13.2% in 2013, to
$1.2189 from $1.0766 per share. NAV at 31 December 2013 was reduced by an accrual for performance fees of
$0.0161 per share. We believe this performance is in line with other distressed debt managers, as indicated by the HFRI Distressed/Restructuring Index, which returned 13.6%2 in 2013 and Bloomberg's BAIF-Distressed Securities benchmark, which returned 11.2%3 over the same period. In the fourth quarter, NBDD's NAV per share increased
1.5%, primarily due to exits and mark-to-market gains on positions which reached key restructuring milestones or
Fund Type: Closed-ended
Investment Company
Launch Date: 10 June 2010
Base Currency: USD
made progress post-reorganization. During the quarter, we saw our 18th, 19th and 20th exits since inception, which are
described in detail below.
Capital Return
In January 2014, the Board of the Company resolved to return $28.0 million (equivalent to approximately $0.2255 per share) to holders of NBDD shares by way of a compulsory partial redemption of NBDD shares. The current return comprises (i) the total capital from investment exits from the NBDD portfolio in the period from 10 June 2013 (being the end of the investment period) through 31 December 2013 and (ii) all other cash available to the NBDD share class, save for amounts deemed to be required to meet follow-on investments that may be required for existing positions and cash for working capital requirements.
Exits
In the fourth quarter, we had three exits, bringing our total to 20 since inception. These exits generated $7.3 million of total income and gains for NBDD and included our most profitable exit to date in the life of NBDDIF (Investment 19).
Investment 18: We purchased $5.6 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 market conditions improved and a refinancing looked increasingly likely, we sold a portion of the position in the secondary market at levels higher than our purchase price. The remaining position was repaid in a refinancing of the notes in the fourth quarter of 2013. Total income from this investment was $1.6 million.
Investment 19: We purchased $7.1 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 $4.5 million.
Investment 20: We purchased $25.5 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 $1.2 million.
NAV Frequency: Daily
Domicile: Guernsey Year End: 31 December Management Fee: 1.5% Bloomberg Ticker: NBDD
ISIN: GG00B64GWK95
Website: www.nbddif.com
DIRECTORSRobin Monro-Davies (Chairman) Talmai Morgan
John Hallam
Christopher Sherwell Michael Holmberg Patrick Flynn
Data as at December 31, 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDD.
1. Source: Bloomberg, except as otherwise noted.
2. 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.).
3. 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.
Please see disclaimer on reverse
For Professional Client Use Only
NB DISTRESSED DEBT INVESTMENT FUND LIMITED - ORDINARY 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 $6.1m $10.6m 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 Real Estate Development Secured Loan Post-Reorg US 4% Multifamily residential real estate
2 REIT/REOCs Private Equity Current US 4% Residential real estate
3 Building & Development Post-Reorg Equity Post-Reorg US 4% Residential real estate
4 Lodging & Casinos Secured Loan Defaulted US 4% Hotel/lodging real estate
5 Leisure Secured Loan Current US 4% Sports/entertainment stadium
6 Utilities Secured Loan Current Australia 4% Power Plants
7 Utilities Secured Loan Defaulted US 3% Power Plants
8 Utilities Post-Reorg Equity Post-Reorg US 3% Power Plants
9 Utilities Post-Reorg Equity Post-Reorg US 3% Power Plants
10 Utilities Secured Loan Current US 2% Power Plants
Total 35%
PERFORMANCE51.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
Jun-10 Aug-10 Nov-10 Feb-11 Apr-11 Jul-11 Oct-11 Dec-11 Mar-12 May-12 Aug-12 Nov-12 Jan-13 Apr-13 Jul-13 Sep-13 Dec-13
COUNTRY BREAKDOWN6 (%) CURRENCY BREAKDOWN6 (%)
Share Price NAV
PIK
5.9% Coupon
Paying
22.3%
Non- Coupon Paying
71.8%
SECTOR BREAKDOWN6 (%)Data as at December 31, 2013. Past performance is not indicative of future returns. All comments unless otherwise stated relate to NBDD.
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, NBDD'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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