Merchants Trust slashes debt costs – The Merchants Trust PLC has entered into a new 3-year revolving credit facility with Scotiabank Europe Plc for GBP42 million. The money will be used to help repay £42m of Merchants’s Fintrust Debenture on 7 August 2019. This will significantly reduce the cost of debt. The weighted average interest rate on all borrowings has dropped from 8.5% in January 2018 to 6.0% today, and following this refinancing exercise it will be 3.5%.
All else being equal, the refinancing will enhance both the revenue earnings and capital returns. While the cost of redemption will initially reduce the NAV per share by 0.5%, or 2.3 pence per share, with debt at fair value, and 2.2%, or 11.4 pence per share, at book value, the refinancing exercise is expected to reduce the total annual interest cost by approximately GBP2.9m, or 2.6 pence per share.
Simon Fraser, chairman, commented: “This year the Merchants Trust celebrates its 130(th) Anniversary. In that time, we have successfully navigated two world wars, the Wall Street Crash and the 2008 financial crisis – so we are well experienced in adapting to changing market conditions. The refinancing of the Company’s long-term debt – introducing a balance of short-, medium-, and long-term debt enables the board to manage gearing more proactively. This will not only lower the cost of debt in a significant way and benefit performance, it will help us carry on our legacy, so we can continue to build on our 37 consecutive years of dividend growth. This refinancing supports Merchants’ objective of delivering an above average level of income and income growth, together with long term growth of capital, through a policy of investing mainly in higher yielding large UK companies.”
Merchants has two tranches of debt from Fintrust. The first tranche of GBP30 million was issued in 1993 at an effective interest rate of 9.51%. The second tranche of GBP12 million was assumed from an existing borrower in 1998 at an effective interest rate of 6.0%. The Fintrust debt was due to mature in 2023. The total cost of redeeming the debt is GBP56.2m plus accrued interest. The balance of the cost will be funded from existing assets.
[This is very good news for Merchants, closing an unfortunate chapter in the company’s long life. This expensive debt has overshadowed good performance by the company and put off investors almost since it was taken out.]
MRCH : Merchants Trust slashes debt costs