Following feedback from shareholders the board of Hipgnosis Songs Fund has decided to initiate a strategic review.
Engagement over recent weeks with shareholders is said to have highlighted a continued belief in the portfolio and growth prospects of the asset class as well as the need for changes by the company in order to deliver value for shareholders. The review will look at all options, with the aim of maximising value for shareholders including, among other things, a review of the future management arrangements.
The board continues to recommend voting in favour of continuation, believing it is in shareholders’ interest to have a strategic review with the widest array of options for the company to consider and to identify changes that will focus on recovering and delivering improved shareholder value.
In addition, the board continues to recommend voting in favour of the portfolio sale “in order to realise proceeds to reduce leverage and undertake a share buyback”. Apparently there is still a chance that a better offer might come along for the catalogues being sold.
The board is actively looking for a new chair, and a timetable has been set for the phased retirement and, if appropriate, replacement of the directors in place since IPO.
No immediate serving of notice on the investment adviser
The board considered serving notice on the investment adviser, but concluded that it is not currently in shareholders’ interests to do so, as it would be an event of default under the revolving credit facility if the investment advisory agreement terminates in circumstances where a new investment adviser has not been approved by lenders (our emphasis). The agreement can be terminated, other than for cause, by the company on not less than 12 months’ notice, with an additional one-time termination fee equal to one year’s advisory fee calculated on NAV as at the termination date.
The board has asked the investment adviser to remove the clause in the agreement related to the call option entitling it to acquire the portfolio on termination of its contract, but the investment adviser declined to accept this.
The board will be undertaking a further round of engagement with shareholders before the votes.
The revolving credit facility
Following the announcement on 16 October 2023 (when the company said it needed to conserve cash following an overaccrual of income, and said it would not pay its dividend), the lenders have agreed to amendments to the facility to return the company to compliance with the fixed charge cover ratio covenant.
[There seems to be an underlying suggestion that the company’s finances are so precarious that it needs to sell these catalogues – even at knock down prices – to shore up its balance sheet. Given that risk free yields are still climbing and the transactional evidence will undermine the NAV, there must be a high risk of a big NAV writedown to come. Would investors still have a continued belief in the portfolio then?.]
SONG : Hipgnosis launches strategic review