Analysts fear liquidity hit as NB debt trust looks to divide shares

NB Distressed Debt is to roll out a new share class to investors, shaking up its capital return and discount control policy in a move that analysts fear could hurt liquidity.

At its launch in 2010, NB Distressed Debt was one of the year's most popular closed-end flotations, attracting some £134 million in assets. Now its board wants to split its existing share class in two and extend the trust's investment timeline.

The board is seeking approval to lengthen the investment period by 21 months, taking it to the end of March 2015 in a shift that will take account of the 'compelling' opportunities that remain within US distressed debt.

Under the plans, the new share class, but not the existing one, will benefit from a capital return policy allowing 100% of profits from realisations returned to shareholders at least every six months, while buybacks will be used to keep the discount under 5%.

An investor vote will be held in April, though ahead of this analysts at Numis have voiced concerns about NB's proposals.

'We can understand why the company is seeking to extend its investment period as the realisation of value in US distressed debt has been slower than in previous cycles.  However, we feel splitting the company in two share classes will not be positive for trading liquidity, which is already patchy given the fund's size ($474 million market capitalisation),' the brokerage said.

Numis also questioned why the discount control policy will not be introduced to the existing share class. It pointed out that despite the trust's blockbuster launch some two and a half years ago, its share price moved to a discount in the second half of 2012 as weaker than expected returns and a lack of yield filtered through.

NB Distressed Debt currently trades at a 2.4% discount, and last year grew its net asset value (NAV) and share price by 11.6%, slightly under the 13.2% increase in the FTSE World Index.

Numis said that even with the changes afoot at NB, it remains positive on the trust, citing its unique mandate among UK listed companies and the likelihood an increased stream of exits will boost its NAV over the months ahead.