James Baxter-Derrington, Investment Week, 14 October 2022:
Hipgnosis Songs Fund has launched a share repurchase programme, which will run for eight weeks.
The buyback scheme will run from today until 8 December and will be managed by Singer Capital Markets Securities.
Any shares purchased as part of the scheme will count towards Hipgnosis’ general buyback authority of 14.99% of the company’s issued share capital.
No further details have yet been revealed by the firm.
Senior analyst at QuotedData Matthew Read said it was “good to see Hipgnosis taking some action on what is now an extreme discount” but would not address the “fundamental problem”.
“The market is concerned about Hipgnosis’s ability to collect the cash it is due,” he explained. “We need to see evidence that cash receipts are closer to profits, we also need to see whether the current discount rate used to value its portfolio remains appropriate. A meaningful increase in the discount rate could push down its NAV to the point where borrowings look excessive (perhaps even triggering some action by the lender).
“Using debt to buy back shares at these levels boosts income (including cash income) on a per share basis, helping SONG meeting any interest cover covenant. However, it reduces the margin of safety on any asset cover covenant.”
The move comes less than two weeks after the trust launched a $700m debt refinancing programme in order to pay off its existing revolving credit facility and fund working capital, described by QuotedData head of investment companies James Carthew as the “fundraising of last resort”.
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