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Witan borrows for 32 years

Witan borrows for 32 years – Witan Investment Trust has agreed to issue a £50m fixed rate 32 year secured private placement note at a coupon of 2.39%. The announcement says that the purpose of this transaction is to obtain fixed rate long dated sterling denominated financing at a pricing level that it considers attractive. Witan thinks it will enhance its long-term investment performance.

The funding date is expected to be 1 October 2019 with interest payable semi-annually.   The principal repayment date will be 1 October 2051. Total structural borrowings including the note will increase from £172m to £222m following completion of this transaction (10.9% of net assets).  In the near-term, it is expected that the proceeds will be mainly used to repay short-term borrowings (currently £81m).

The weighted average interest payable on the trust’s structural borrowings will decrease from 4.3% to 3.8% as at the date of funding.

[QD comment: Somehow it seems unlikely that Witan will not be able to make returns greater than 2.39% a year for the next 32 years. UK equity yields are well ahead of this, for example. Long-term borrowing used to be a bad thing in the sector – too many trusts locked in interest rates of 6%, 7%, 8% and even higher back in the 1990s. The last of these millstones are falling away now – Merchants Trust, for instance, announced in July that it had refinanced debt taken out in 1993 that had an interest rate of 9.51%. Maybe Witan’s strategy should be adopted by other trusts. However, we cannot rule out borrowing costs falling further from here. The managers at Henderson Diversified Income, for example, think we are stuck in a period of low inflation and low to negative interest rates for the foreseeable future. That might imply quite low returns from equities too.]

WTAN : Witan borrows for 32 years

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