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Mark Barnett set for cheaper debt boost

by Robert St George on May 28, 2014 at 10:42

Mark Barnett set for cheaper debt boost

The £1.4 billion Edinburgh Investment Trust , managed by Citywire AAA-rated Mark Barnett, will soon begin to benefit from far lower borrowing costs.

Edinburgh is currently geared through two debentures, one for £100 million at 7.75% dated 2022 and another for the same amount at a rate of 11.5%.

This more expensive debenture matures in June, and the trust’s chair Jim Pettigrew has now confirmed a cheaper £100 million credit line has been negotiated with the Bank of New York Mellon.

‘The new facility will be available for the debenture’s redemption date of 30 June 2014, and will represent a material saving in interest costs for the company,’ stated Pettigrew.

In both of the past two years ended 31 March, Edinburgh has paid out £19.5 million in borrowing costs – more than it has in management fees, which were £11.8 million this year and £17.5 million in 2013. The interest also represented a substantial proportion of the trust’s total income this year of £55.4 million.

Barnett (pictured) added that ‘the overall cost of borrowing will be significantly reduced’ by the new debenture, and confirmed that he would ‘continue to use the gearing facility to seek enhanced returns’.

Over the past three years Edinburgh has returned 49% on a net asset value basis, compared with 31% from the FTSE All Share index.

The trust is also seeking to change its gearing policy from a fixed absolute cap of £200 million to a relative one set at 25% of net assets. The portfolio is currently 15% geared.

‘I can assure shareholders that it is not the current intention of the manager to increase gearing to 25%, but to provide more flexibility,’ explained Pettigrew.

Barnett took responsibility for Edinburgh from Neil Woodford in January, with the board also securing from Invesco Perpetual a reduction in the annual fee from 0.6% to 0.55% and the dropping of the performance fee, as well as a cut of £7.5 million to the performance fee payable for the year ended 31 March 2014.

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