Hipgnosis Songs refinances debt

Hipgnosis Songs Fund: SONG

Hipgnosis Songs Fund has refinanced its debt facilities. The company has entered into a new revolving credit facility (RCF) with a commitment of US$700m which runs for five years until 30 September 2027.  The facility will be used to refinance, in full, the company’s pre-existing RCF and for working capital purposes.

In accordance with the investment policy, any borrowings by the company will not exceed 30% of NAV.

Interest on the new facility charged is based on the Secured Overnight Financing Rate (SOFR), published by the New York Federal Reserve, plus a margin of between 2.00% and 2.25% depending on the gross drawn debt.  The initial margin will be 2.00%.

In addition, HIpgnosis Songs is in advanced talks to fix the majority of its interest rate exposure by entering into interest rate swaps to hedge the interest on the drawn debt. This transaction is expected to be completed shortly and the company will update the market in due course. [This fixing of the debt is important given the current environment, there had been a concern that rising interest costs would eat further into the company’s cash revenue earnings net of debt, which are already insufficient to cover the dividend.]

City National Bank was lead arranger and sole bookrunner for the new debt facility with Truist Securities, Inc., MUFG Union Bank, N.A. and Fifth Third Bank as co-leads.

As reported in the last financial results, at 31 March 2022 the gross debt was $600m.  The credit margin on this debt was 3.25% over a floating rate based on the London Interbank Offered Rate (LIBOR).  Net debt as a percentage of operative NAV at 31 March 2022 was 25.4%.

[The announcement makes reference to the investment policy limit of 30% debt:NAV. However, this announcement does not make it clear whether this is also a covenant that the lender has imposed on Hipgnosis Songs Fund. It would be good to know the finer detail on this given the current concern about the direction of the discount rate used to calculate the NAV and the impact that this might have on the fund’s debt cover ratio.]

SONG : Hipgnosis Songs refinances debt

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