Music royalties investor Hipgnosis that’s bought songs from Neil Young to Blondie reveals new $700m debt financing deal
- The firm’s new $700m revolving credit facility will run until September 2027
- Hipgnosis was founded by Merck Mercuriadis and Chic guitarist Nile Rodgers
- Christine McVie and Neil Young have sold their back catalogues to Hipgnosis
Music investment trust Hipgnosis, known for buying up back catalogues belonging to the likes of Blondie, Neil Young and Leonard Cohen, has announced a new debt refinancing package.
The song management business said it had entered into a revolving credit facility worth $700million, which will run until the end of September 2027 and will also partly go towards ‘working capital purposes.’
Interest on this new facility will be based on the Secured Overnight Financing Rate, a benchmark interest rate that replaced LIBOR, plus a margin of between 2 and 2.25 per cent depending on the gross drawn debt.
Founders: Hipgnosis Songs Fund was set up four years ago by Merck Mercuriadis (L), a former Iron Maiden manager, and Nile Rodgers (R), the frontman of funk band Chic
Furthermore, the Guernsey-registered firm revealed it was close to completing a deal to lower its interest payments by entering into interest rate swaps to hedge the interest on its drawn debt.
In July, Hipgnosis bosses revealed they were reviewing the company’s debt structure because interest rate hikes had led to increased borrowing costs.
Chris Helm, the finance boss of Hipgnosis Song Management, said: ‘Our new debt facility reduces the interest margin and provides added flexibility and headroom for the company. This is a strong commitment from both our new and old lenders.’
Since being set up four years ago by Merck Mercuriadis, a former Iron Maiden manager, and Chic frontman Nile Rodgers, Hipgnosis has raised £1.3billion in equity and incurred $600million of debts in order to invest in back catalogues.
Among the most famous musicians to sell their songwriting rights to the firm in return for a massive payday have been the Red Hot Chili Peppers, Neil Young and Fleetwood Mac’s Lindsey Buckingham and Christine McVie.
Following a whirlwind of catalogue acquisitions in its first three years, though, the business has slowed the pace of investment over the past 18 months as concerns regarding its finances have mounted.
Net debts equalled $569.9million at the end of March, compared to just $51.8million at the same point two years previously.
Yet Mercuriadis said the new financing arrangement and possible swaps deal would ‘provide long-term certainty’ amidst an ‘increasingly unpredictable debt market’ and give it more opportunity to benefit from certain underlying trends within the music industry.
These include the rise in streaming platforms, such as Spotify, Apple Music and Deezer, which generated around $25.1billion in global revenue in 2021, an increase of almost one-third from the previous year.
He added: ‘The continued growth in streaming and additional revenue streams from digital platforms, irrespective of macroeconomic conditions, coupled with the improved terms of our new RCF is very encouraging.’
Hipgnosis received a boost three months ago when a US court upheld a decision to hike the percentage of songwriting royalties paid by streaming platforms from 10.5 per cent to 15.1 per cent.
Analysts at broker Liberum have predicted the company would benefit from a ‘meaningful’ jump in revenues due to the ruling, although it was unable to predict the size of this benefit.
Hipgnosis Songs Fund shares were up 1.1 per cent to 90p during the late afternoon on Monday, although their value has also fallen by about 28 per cent this year.