James Baxter-Derrington, Investment Week, 10 October 2022:
Hipgnosis Songs fund (SONG) successfully issued a $700m debt refinancing programme at the beginning of October, however the delay and details of the “fundraising of last resort” leaves questions for investors.
As part of an investment note that recommended the music trust as a ‘buy’, Investec analysts Ben Newell and Alan Brierley explained that while the refinancing included an increase of the revolving credit facility, investors must note the atypical usage of the RCF.
“Although the debt structure is labelled as an RCF, investors must be aware that it has not been used as an acquisition facility in the same way that RCFs are typically used by other alternative companies such as the infrastructure and renewables companies,” they wrote.
They added that while the refinancing was an “important development” that provides greater security for servicing the company’s dividend, the drawn-out process has only raised further questions over corporate governance at the trust.
Shavar Halberstadt, equity research analyst at Winterflood Securities, also described the arrangement as “not particularly inspiring” and highlighted that while the policy aids dividend security, it does not “guarantee or prevent full dividend cover in and of itself”.
QuotedData head of investment companies James Carthew questioned whether the method was simply the “fundraising of last resort”, adding the cost of fixing the debt “feels high and may be a drag on returns if rates return to normal”.
“Based on the last accounting year’s cashflow, the debt looks like it might be uncovered by cash earnings,” he said.
He remained positive on music as an asset class, however, suggesting the original factors of growing streaming revenues and subscriptions, alongside a fairer deal for songwriters are “still in place”.
“Plus, it is largely US dollar exposure which is likely to be good news for a while yet.”
the trust had a responsibility both to deliver for shareholders and educate the broader market.
“The fact that the trust trades on a discount to NAV suggests that there is further work to do on the education front,” he said.
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