Hipgnosis Songs Fund secures new $700m debt bundle, ‘materially’ decreasing curiosity burden on its borrowing

Hipgnosis Songs Fund (HSF) has secured a brand new $700 million revolving credit score facility to refinance its present $600 million in debt.

The brand new borrowing bundle, confirmed at the moment (October 3) will run for 5 years till September 30, 2027 and shall be used to totally refinance the corporate’s money owed and beef up its working capital.

In its newest annual report, issued in July, Hipgnosis famous that rising rates of interest had led to an “improve in borrowing prices” on its earlier, maxed-out $600 million debt bundle.

“The Board, along with the Funding Adviser, is within the means of a overview of its leverage construction with a view to decreasing rate of interest threat and management prices for the Firm,” HSF mentioned on the time.

How does the brand new $700 million bundle enhance that rate of interest threat for HSF?

HSF confirmed at the moment that charged curiosity on the brand new facility relies on the New York Federal Reserve’s Secured In a single day Financing Fee (SOFR), plus a margin of between 2.00% and 2.25% relying on the scale of the agency’s gross drawn debt. (The preliminary margin shall be 2.00%.)

That differs from HSF’s earlier deal for its maxed-out $600 million debt facility. The credit score margin on that debt was 3.25% over the floating determine of the London Interbank Supplied Fee (LIBOR).

To color an approximate image of the distinction between these two debt agreements proper now:

It must be famous that each the LIBOR and SOFR are floating charges, so the above is clearly topic to alter.

Nonetheless, following its new $700 million deal, HSF (aka SONG) mentioned at the moment that it’s in further discussions to “repair nearly all of [our] rate of interest publicity by getting into into rate of interest swaps to hedge the curiosity on [our] drawn debt”.

Metropolis Nationwide Financial institution was lead arranger and sole bookrunner for the brand new $700 million facility (with Truist Securities, Inc., MUFG Union Financial institution, N.A. and Fifth Third Financial institution as co-leads).

Jim Irvin, Senior Vice President, Metropolis Nationwide Financial institution, at the moment defined why his firm has prolonged the brand new $700 million debt bundle to HSF, regardless of difficult macroeconomic situations.

“We’re extraordinarily optimistic about Hipgnosis Songs Fund’s progress and potential, which is why Metropolis Nationwide Financial institution is happy to offer debt refinancing,” he mentioned.

“The brand new revolving credit score facility will scale back the margin on the corporate’s debt at a time of rate of interest volatility and guarantee SONG delivers superior worth for shareholders into the long run.”

“In an more and more unpredictable debt market, this deal materially reduces our curiosity margin… the swaps we hope to shut imminently [will] present long-term certainty and a secure platform to reap the benefits of our business’s tailwinds.”

Merck Mercuriadis, Hipgnosis Songs Fund

Merck Mercuriadis, CEO and Founding father of Hipgnosis Tune Administration added: “In an more and more unpredictable debt market, this deal materially reduces our curiosity margin and the swaps we hope to shut imminently present long-term certainty and a secure platform to reap the benefits of our business’s tailwinds.”

Added Mercuriadis: “The continued progress in streaming and extra income streams from digital platforms, no matter macroeconomic situations, coupled with the improved phrases of our new RCF could be very encouraging for SONG and can ship worth to our shareholders as revenue from our portfolio of songs will increase.”

Chris Helm, CFO (SONG) at Hipgnosis Tune Administration, commented: “Our new debt facility reduces the curiosity margin and supplies added flexibility and headroom for the Firm.

“It is a robust dedication from each our new and outdated lenders and we want to thank them for his or her assist.”

London-listed HSF hasn’t purchased a catalog in over a yr and, as a result of market situations, has declined to lift new funds by way of share points.

In distinction, nevertheless, the broader three-pronged Hipgnosis group has spent about $300 million on music catalogs throughout 2022 thus far.

Along with Hipgnosis Songs Fund, the Merck Mercuriadis-founded Hipgnosis group contains funding advisory agency Hipgnosis Tune Administration (HSM), and Hipgnosis Songs Capital (HSC). The latter was fashioned by way of $1 billion in backing from personal fairness large Blackstone in 2021.

HSM is tasked with discovering catalog acquisition alternatives for each HSF and HSC. HSC’s cash has been used to accumulate catalogs from the likes of Justin Timberlake and the Leonard Cohen property this yr.

HSF has secured the brand new credit score facility a fortnight after J.P. Morgan issued an upbeat outlook on the corporate. The funding large mentioned it was bullish on HSF’s worth as a result of long-term progress potential of its asset class and the top quality of its portfolio.

“We count on a really robust bounce again in [HSF’s] efficiency revenue” within the months forward, J.P. Morgan mentioned, in a reference to Covid lockdowns’ damaging impression on publishing efficiency revenues within the firm’s earlier FY.Music Enterprise Worldwide