Hipgnosis Songs Fund launches debt-funded buyback to halt share slide

Hipgnosis Songs Fund, the London-listed trust that has bought song catalogues from artists such as Blondie and Neil Young, has launched a debt-funded share buyback programme after its stock fell 30 per cent in six weeks. 

The fund, backed by US private equity group Blackstone, made the move after the tumbling share price left its market value at half of what Hipgnosis had said its catalogues were worth.

It will finance the share buybacks using new debt from a refinancing at the beginning of this month. The company would not disclose how many shares it intends to buy.

When music mogul Merck Mercuriadis listed the Hipgnosis Songs Fund on the London Stock Exchange in 2018, during a time of low interest rates and soaring stock markets, he pitched it to investors as a way to cash in on the revival of music revenue, saying songs were a better investment than oil or gold.

Hipgnosis grew fast after the listing by repeatedly raising new money and using it to buy more catalogues at a breakneck pace, sending its headline revenue figures soaring.

But it has not bought a catalogue for more than a year, and the underlying revenues generated by its current song portfolio have been falling ever since they were first disclosed. It is under further pressure from rising interest rates, which push up the cost of its debts and eat into the value of its catalogue.

“This is a surprising announcement to us,” analysts at the investment bank Stifel said in a note. “Effectively the fund will be borrowing at just under 6 per cent to buy back stock . . . the market is essentially indicating a lack of credibility over valuations.” 

Shares were up 7 per cent in afternoon trading following the announcement.

The falling share price has left Hipgnosis Songs Fund effectively unable to raise new equity with which to buy more song catalogues, because doing so would dilute existing shareholders.

Blackstone last year bought a majority stake in Hipgnosis Song Management, which advises Hipgnosis Songs Fund. Blackstone also has a separate $1bn fund, Hipgnosis Songs Capital, which is privately held and advised by HSM.

The listed fund this month took on a facility from City National Bank which lets it borrow up to $700mn at an interest rate between 2 and 2.25 per cent above the Secured Overnight Financing Rate, a daily interest rate based on transactions in financial markets.

“We were expecting the additional headroom gained from the recent refinancing . . . to be used as a cushion to provide comfort that near-term dividend payments can be met,” the Stifel note said.

The share purchase programme will start on Friday and run until December 8, Hipgnosis said.