As a part of an funding be aware that really helpful the music belief as a ‘purchase’, Investec analysts Ben Newell and Alan Brierley defined that whereas the refinancing included a rise of the revolving credit score facility, traders should be aware the atypical utilization of the RCF.
“Though the debt construction is labelled as an RCF, traders have to be conscious that it has not been used as an acquisition facility in the identical approach that RCFs are sometimes utilized by different various corporations such because the infrastructure and renewables corporations,” they wrote.
Hipgnosis enters $700m debt refinancing
They added that whereas the refinancing was an “vital growth” that gives better safety for servicing the corporate’s dividend, the drawn-out course of has solely raised additional questions over company governance on the belief.
Shavar Halberstadt, fairness analysis analyst at Winterflood Securities, additionally described the association as “not significantly inspiring” and highlighted that whereas the coverage aids dividend safety, it doesn’t “assure or forestall full dividend cowl in and of itself”.
QuotedData head of funding corporations James Carthew questioned whether or not the strategy was merely the “fundraising of final resort”, including the price of fixing the debt “feels excessive and could also be a drag on returns if charges return to regular”.
“Based mostly on the final accounting 12 months’s cashflow, the debt appears to be like prefer it could be uncovered by money earnings,” he mentioned.
He remained optimistic on music as an asset class, nevertheless, suggesting the unique elements of rising streaming revenues and subscriptions, alongside a fairer deal for songwriters are “nonetheless in place”.
“Plus, it’s largely US greenback publicity which is more likely to be excellent news for some time but.”
The brand new $700m RCF will run for 5 years till 30 September 2027 and can refinance in full the present RCF, which stands at a gross debt determine of $600m, based on the 31 March 2022 outcomes.
This unique RCF had a credit score margin of three.25% over a floating price based mostly on LIBOR, whereas the brand new RCF can be based mostly on SOFR plus a margin of 2-2.25% relying on gross drawn debt. The preliminary margin can be 2%.
Hipgnosis Songs Capital submits bid for Pink Floyd catalogue
Newell and Brierley described the failure to repair pursuits prices till now an “error of judgement by the board and administration”, whereas Charles Stanley funding analyst Rob Morgan added that having performed so “supplies extra certainty” and is more likely to be “effectively acquired”.
“The usage of gearing is a broader challenge for all trusts with borrowing that’s both variable curiosity or fastened with substantive quantities coming as much as refinance,” he mentioned.
“But as with different trusts investing in ‘lengthy length’ recurring earnings property, the rising tide of rates of interest in latest weeks and months has torn up valuation fashions and diminished the costs traders are keen to pay.”
Blackstone
In October 2021, funding adviser Blackstone partnered with Hipgnosis Track Administration to launch the publicly listed SONG in a $1bn deal that additionally noticed the pair launch the non-public Hipgnosis Songs Capital.
The deal was met with blended reactions, with Investec’s Newell describing SONG shareholders as getting “the skinny wedge of the deal”, whereas Winterflood’s Halberstadt mentioned the partnership was an “endorsement of the mannequin”.
“[Hipgnosis founder] Merck Mercuriadis has assured traders that the listed automobile retains his undivided consideration, and SONG has the correct to co-invest alongside the Blackstone-backed non-public entity,” Halberstadt defined. “Moreover, the funding accessible from Blackstone to enhance total operations (together with track administration) ought to profit the listed entity as effectively.”
Music royalty ruling could present one-off earnings increase for Hipgnosis
Fergus Shaw, fund supervisor at Cerno Choose fund, added the deal resulted in an “elevated useful resource for the energetic administration of a considerable catalogue of music which may solely be seen positively from a shareholder perspective”.
Nonetheless, QuotedData’s Carthew highlighted the likelihood that if Blackstone proceed to benefit from the mannequin, it “would possibly simply organise a take non-public deal at a small low cost to NAV”.
Low cost
The low cost to internet asset worth stays broad, with information from the Affiliation of Funding Firms placing it at 38.6%.
That is for a wide range of causes, based on Halberstadt, together with “lingering investor considerations” round dividends and the potential to additional make investments.
“Sentiment is probably going to enhance if the fund shows its means to maximise earnings from the present portfolio, supported by the tailwinds of streaming progress, beneficial regulatory selections and a world re-opening,” he mentioned.
Shaw added that as the primary music royalties fund provided in London, the belief had a duty each to ship for shareholders and educate the broader market.
“The truth that the belief trades on a reduction to NAV suggests that there’s additional work to do on the training entrance,” he mentioned.
