Chrysalis Investments (CHRY) announced that it has agreed to a £70m debt facility with Barclays Bank. In addition to the committed £70m, the facility also includes an uncommitted accordion of £15m. The announcement comes after recent discussions that the company was considering options to enhance liquidity and so enable its capital allocation policy to take effect at the earliest opportunity, which includes potential short-term gearing.
Commenting on the announcement, Nick Williamson and Richard Watts, managing partners of the investment adviser added:
“As we have articulated to shareholders in recent months, we believe the addition of a modest amount of debt will allow the company to accelerate returns to shareholders as realisations occur within the portfolio. With the shares currently trading on a circa 41% discount to NAV and with a strong portfolio, we believe share buybacks could offer a compelling way to accrete NAV per share to the benefit of long-term shareholders.”
Regarding the facility, the agreement has a two-year tenor, which the investment adviser believes provides sufficient time for potential further realisations to occur, while falling within the three-year continuation period extension, which was approved by shareholders in March 2024. A market-rate margin plus the daily SONIA rate will be charged on borrowed amounts, with an arrangement fee also payable on the full commitment. The facility is repayable with no cost after one year.
The quantum of the facility is designed to cover the “buffer” element of the CAP, which the board and investment adviser currently believe is appropriately set at approximately £50m. The buffer is designed to cover working capital and potential follow-on investments.
When the buffer requirement is fulfilled by the facility, the board will be in a position to consider the second pillar of the CAP, namely the return of up to £100m to shareholders, likely through the commencement of share buybacks. The timing of any returns of capital will be dependent on receipt of funds from Barclays, among other relevant considerations, and a further announcement on this will be made in due course.
Given the above, both the board and the investment adviser consider the benefits of the facility will outweigh the costs to the company.
The maximum level of gearing in the company, as measured against NAV and assuming the facility is fully drawn, is modest at approximately 8.1%, based on NAV as of 30 June 2024.
Liquidity
The company’s liquidity position as of 23 September 2024 was £47.2m, comprising cash of £45.3m and a position in Wise worth £1.9m. Once the £70m drawdown on the facility is received, liquidity would increase to approximately £117.2m, representing approximately 23% of its market capitalisation (as of 23 September 2024).
CHRY: Chrysalis makes moves on debt facility to drive capital allocation policy
