Scottish Mortgage Investment Trust has raised £125m in long term, fixed rate, senior, unsecured private placement notes.
The cash has been secured at rates of between 3.05 per cent and 3.65 per cent to replace existing loans with rates of up to 14 per cent.
John Scott, chairman of Scottish Mortgage, said the loans will have no impact on the overall indebtedness of the trust which prior to the placements included US$165m (£132.68m) of floating rate loans and three fixed rate, long-term debentures totalling £145m.
The trust's new private placements include one 25 year note for £45m with a fixed coupon of 3.05 per cent, one 27 year note for £30m with a fixed coupon of 3.3 per cent and a 30 year note for £30m with a fixed coupon of 3.12 per cent.
The funds raised will be used to retire, in part, an existing bank debt facility of US$165m (£132.68m) which is due to mature this month, while an additional £20m is being used to refinance the company’s existing £20m debenture, at the time this matures in 2020.
This note will have a fixed coupon of 3.65 per cent, payable semi annually, and a tenor of 24 years.
Mr Scott spoke of the trust's legacy loans: “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.
"We are unable to pre-pay these debentures without significant penalty, but I am pleased to say that we have taken advantage of current market conditions which allow us to access long term fixed rate sterling at rates of just over 3 per cent per annum."
He added the new loans will reduce Scottish Mortgage’s exposure to possible future increases in interest rates, as well as starting the programme of replacing its existing fixed rate debentures, the first of which matures in 2020.
"When this new £20m facility replaces its predecessor in three years’ time, the interest rate on that £20m tranche will fall from 14 per cent to 3.65 per cent," Mr Scott said.
“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.”
katherine.denham@ft.com
