Scottish Mortgage investment trust refinances expensive debt

Scottish Mortgage Investment trust is refinancing £125m in debt, including a £20m tranche that will see its interest rate fall from 14 per cent to 3.65 per cent.

The funds raised will retire in part an existing £165m bank debt facility due to mature early this month as well as the company’s existing £20m debenture that matures in 2020.

The transaction, which will result in average interest costs of 3.2 per cent, will involve long term, fixed rate, senior, unsecured private placement notes, denominated in sterling.

Chairman John Scott says the trust is unable to pre-pay these debentures without significant penalty and has taken advantage of current market conditions to access fixed rates just over 3 per cent.

“Our current borrowing facilities comprise principally some US$450 million in floating rate loans and three fixed rate, long term debentures totalling £145 million,” Scott says.

“The latter were arranged many years ago and pay interest rates which reflect the circumstances of those times – which are considerably higher than the rates available today.”

A private placement will raise £105m through one 25-year note for £45 million with a fixed coupon of 3.05 per cent, one 27 year note for £30 million with a fixed coupon of 3.30 per cent and a 30-year note for £30 million with a fixed coupon of 3.12 per cent.

An additional sum of £20m will have a fixed coupon of 3.65 per cent, payable semi annually, and a tenor of 24 years.

Scott says: “In committing Scottish Mortgage to a borrowing programme which stretches to 2047, the board looked both at the interest costs, which average some 3.22 per cent, and the company’s long term investment record, which in the five years to 28 February 2017 has seen a compound increase in NAV per share of 19.2 per cent per annum.”

Santander acted as sole placement agent for the transaction.

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Performance source: Morningstar, total return
*FTSE All-World Index
All data as at 28 February 2017 unless otherwise stated