Scottish Mortgage, managed by Baillie Gifford’s James Anderson and Tom Slater, has raised £125 million through issuing ‘long-term, fixed rate, senior, unsecured private placement notes’ with an interest rate of just over 3% a year.
In a statement to the stock exchange, the £5.2 billion trust, which was recently promoted to the FTSE 100, said the purpose of the issue was ‘to obtain long-dated unsecured sterling denominated financing at what the company believes to be attractive pricing levels, with the intention of enhancing shareholder returns over the long term’.
The money was raised through the issue of three different issues of notes. Notes are similar to bonds but instead of being tradeable on a market, they are purchased by a single investor, typically major institutions such as a pension fund or insurance company. Scottish Mortgage did not state who provided the loans.
The money raised through the notes will be used, in part, to replace an existing debt facility of $165 million (£130 million), which ends this month.
The trust, which is currently 7% geared, will also raise another £20 million to refinance an existing £20 million debenture that matures in 2020.
John Scott, chairman of Scottish Mortgage, said the trust had taken advantage of low interest rates to cut the cost of its borrowing. The trust has not increased the level of its debt.
‘Our current borrowing facilities comprise principally some $450 million in floating rate loans and three fixed-rate, long-term debentures totalling $145 million,’ he said.
‘The latter were arranged many years ago and paying interest rates which reflect the circumstances of those times – which are considerably higher than the rates available today.’
By arranging refinancing now, Scott said the trust would reduce its exposure to increasing interest rates in future.
Scottish Mortgage is not the only trust taking advantage of low interest rates. The £226 million Troy Income & Growth trust, managed by Francis Brooke, has arranged a two-year credit facility of £20 million with ING Luxembourg bank, paying an interest rate of just 0.9% over Libor, the inter-bank lending rate currently set at 1.16%.
The trust, which has remained ungeared, has said it would not draw on the facility straight away but use it on a ‘tactical basis’.
‘As stated in the company’s 2016 annual report, the board and manager intend to gear the portfolio on a tactical basis as and when compelling equity valuation levels are presented,’ the trust said in a statement to the stock exchange.
‘The ING facility will not be put to immediate use but provides an efficient and cost-effective means of providing gearing at appropriate times.’
In its 2016 annual report, Troy said if it did use its gearing facility it ‘will be up to 15% of net assets immediately following drawdown, with a maximum level of aggregate borrowing of 25% of net assets’.
Chairman David Warnock said that the ‘conservative approach to gearing remains appropriate in these uncertain times’.