Neuberger Berman launches Corporate Hybrid Bond UCITS

Zurich, 12 January 2016 - Hybrids have features of both debt and equity.

Julian Marks, Global Credit Portfolio Manager at Neuberger Berman explains: "The hybrid universe offers an opportunity to access investment grade names whilst earning returns commensurate with the high yield market. The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment."

Hybrid bonds are long-dated or perpetual and have call options at the issuer's discretion. Issuers can suspend coupon payments on hybrid debt without triggering an event of default but if they were to do so, the company could not pay equity dividends again until all missed coupon payments were met with all interest paid. Given these characteristics, hybrid debt yields are significantly higher than senior bonds of the same high-quality investment grade issuers. Euro denominated corporate hybrid debt currently offers an average yield of over 4%, which is almost 3% higher than the average yield for euro investment grade credit.

This is a rapidly growing market, currently at $120bn and with new issuance of $25bn to $30bn forecast per year for the foreseeable future due to the compelling financial incentives for companies to issue hybrids as a means of raising capital.

Marks continues, "Companies can issue hybrid capital without diluting voting rights of existing shareholders, while equity credit from rating agencies supports credit ratings. Most hybrids receive 50% equity credit at issuance. In addition, the optionality afforded on coupons and calls of hybrids is another attraction relative to senior debt. However, due to the relatively complex nature of these instruments, investing in corporate hybrids requires specific expertise, including a thorough credit assessment and an in-depth analysis of the issue features, in order to reach a conclusion as to a fair valuation."

The Neuberger Berman Corporate Hybrid Fund is run by highly-experienced investment grade credit portfolio managers Julian Marks and David Brown. Neuberger Berman has in-depth knowledge of this market, having being involved in more than 60% of all corporate hybrid primary market deals since January 2014. The group currently manages about $500m in dedicated corporate hybrid mandates, primarily for Japanese institutional clients.

The Neuberger Berman Corporate Hybrid Fund is a sub-fund of the Irish-Domiciled UCITS fund umbrella, Neuberger Berman Investment Funds plc. It launched on 19th November with initial seed capital of $21m. It is registered for Sale in Switzerland.

Disclaimer:

The above press release is for information purposes only and it should not be regarded an offer or solicitation of an offer. We do not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. Investing entails risks, including possible loss of principal. Past performance is not indicative of future results. The information contained in this press release is given at the date of its publication (unless otherwise marked) and is subject to updating, revision and amendment. The opinions expressed reflect the opinion of Neuberger Berman Group and its affiliates ("Neuberger Berman") and are subject to change without notice. This document is issued by Neuberger Berman Europe Limited which is authorised and regulated by the Financial Conduct Authority ("FCA") is registered in England and Wales, at Lansdowne House, 57 Berkeley Square, London, W1J 6ER and is also regulated by the Dubai Financial Services Authority as a Representative Office.

Neuberger Berman is a registered trademark.

© 2016 Neuberger Berman.

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