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Brunner refinances debt crystallising 21.5p NAV hit

Brunner refinances debt crystallising 21.5p NAV hit – The Brunner Investment Trust has priced an issue of a GBP25 million fixed rate 30 year unsecured private placement note at a coupon of 2.84%. The funding date for the note should be 28 June 2018.

The money will be used towards an early repayment of Brunner’s share of Fintrust Debenture PLC borrowings of GBP28m (Fintrust). Brunner has two tranches of debt from Fintrust. The first tranche of GBP15 million was issued in 1993 at an effective interest rate of 9.3%. The second tranche of GBP13 million was assumed from an existing borrower in 1998 at an effective interest rate of 6.0%. The Fintrust debt is due to mature in 2023. The total cost of redeeming the debt is GBP39.4m including accrued interest. The balance of the cost will be funded from a combination of existing assets and bank debt.

Following this refinancing exercise, the company’s weighted average interest on all structural borrowings and preference stock will be 2.9%, compared with 7.7% currently.

The board says it wanted to lock into a long term rate at pricing levels that it thinks are highly attractive. The hit to the NAV is 0.7% (or 5.9 pence per share) on the NAV with debt at fair value measure that most people use. The true cost is 2.4% (or 21.5 pence per share). Had the board left the existing debt in place, the gap between the NAV at fair value and the NAV at par (the true NAV) would have narrowed to zero over 5 years. Against that, the refinancing exercise is expected to reduce the total annual interest cost by approximately GBP1.3m (or 3.0 pence per share) which will enhance both the revenue earnings and capital returns (Brunner charges 70% of the cost of debt to its capital account and 30% to its revenue account).

BUT : Brunner refinances debt crystallising 21.5p NAV hit

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