Hipgnosis Announces ‘Successful Refinancing’ of Debt, Discloses ‘Advanced Talks’ For Interest Rate Swaps

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Nearly three months after signaling that it was “in the process of a review of its leverage structure with a view to reducing interest rate risk and control costs,” Hipgnosis Songs Fund (LON: SONG) has announced “the successful refinancing” of its debt facilities.

Hipgnosis Songs Fund, along with its “investment adviser” Hipgnosis Song Management, unveiled the refinancing via a formal release today. While Blackstone-powered HSM has continued to close song-rights deals in 2022 (and is reportedly vying for the catalog of Pink Floyd), a maxed-out credit line (at around $600 million, or 30 percent of its net asset value) has since August of 2021 compelled HSF to put further music-IP plays on hold.

(Given the correspondingly significant role that the worth of Hipgnosis’ portfolio plays in the entity’s operations, some have scrutinized the valuation methodology behind the involved song rights. Despite this criticism and a price dip for SONG, though, certain financial professionals remain confident in the long-term trajectory of HSF.)

Now, as mentioned at the outset, Hipgnosis Songs Fund has officially refinanced its debt and disclosed “advanced talks to fix the majority of its interest rate exposure by entering into interest rate swaps.”

On the former front, higher-ups elaborated that the new revolving credit facility comes “with a commitment of US$700 million” and will run until September 30th, 2027. Interest on the facility will be charged based upon the New York Fed’s Secured Overnight Financing Rate “plus a margin of between 2.00% and 2.25% depending on the gross drawn debt,” with an initial margin of two percent.

City National Bank was the “lead arranger and sole bookrunner” on the just-revealed debt facility, Hipgnosis indicated, with Truist Securities, Union Bank, and Fifth Third listed as co-leads. “The facility will be used to refinance, in full, the Company’s pre-existing RCF and for working capital purposes,” Hipgnosis noted. “In accordance with the Investment Policy, any borrowings by the Company will not exceed 30% of the value of the net assets of the Company.”

Meanwhile, Hipgnosis expects the aforesaid interest rate swaps to wrap “shortly” and intends to “update the market in due course.”

Addressing the developments in a statement, Hipgnosis head Merck Mercuriadis communicated in part: “In an increasingly unpredictable debt market, this deal materially reduces our interest margin and the swaps we hope to close imminently provide long term certainty and a stable platform to take advantage of our industry’s tailwinds.”

Additionally, City National SVP Jim Irvin relayed in a statement of his own: “We are extremely optimistic about Hipgnosis Songs Fund’s growth and potential, which is why City National Bank is pleased to provide debt refinancing. The new revolving credit facility will reduce the margin on the company’s debt at a time of interest rate volatility and ensure SONG delivers superior value for shareholders into the future.”

During today’s trading hours, Hipgnosis stock improved slightly to finish at GBX 89.50. Last week, Genesis members Phil Collins, Tony Banks, and Mike Rutherford sold their song rights to Concord in a deal that was reportedly worth more than $300 million.