5 Aug 2020 15:13
NB Global Floating Rate Income Fund: Analysis of proposals
05/08/2020
The board of the £335m NB Global Floating Rate Income Fund revealed plans today to adopt a new approach with a revised investment objective allowing the managers to invest in a much broader range of assets, including alternative credit, and to pay income on a monthly basis; the latter commencing after the declaration of the 2020 Q3 dividend.
The new investment objective will mean the trust can still invest in 'senior secured, floating rate' loans (which have their 'coupon' tied to interest rates and therefore should cope better in a rising rate environment than conventional fixed rate bonds) where the majority of its portfolio is currently held, but will also be able to invest in a broad range of other debt types including but not limited to high yield and investment grade bonds and alternative credit comprising of distressed credit type situations , mezzanine debt and - importantly, as we discuss later - private corporate loans.
The proposals, which are subject to approval by shareholders at an EGM scheduled for September 8, will also see a tender offer allowing existing shareholders who wish to exit the trust - currently trading on a discount of 8% - to do so at a discount of 2%, with plans to accommodate up to 40% of the shares in issue.
Should the proposals be approved, the revamped trust will implement a discount control policy, effective 1st January 2021 allowing investors to tender their shares at a discount of 3% every six months, after an initial period of eighteen months following the adoption of the new policy.
Kepler View
The proposals which the board have put forward give the team at Neuberger Berman (NB) a considerably broader palette with which to work.
They turn what was a single strategy fund - the merit of which from an investor's point of view was highly sensitive to the direction of and speed at which interest rates were moving - into a far more flexible vehicle, designed to generate income via a broad portfolio of debt assets.
If shareholders vote to approve these proposals the trust will effectively become a strategic bond "best-ideas" fund with a very broad remit, which includes access to some assets - like private debt - that can't be bought in open-ended funds.
Given the size and expertise of the team at NB - the current management group sits within a larger team of 40 investment professionals and NB runs over $120bn of fixed income assets - this ability to invest in private transactions is particularly interesting...
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