This decision provides the company with greater certainty about the cost of its debt after obtaining a new 700 million US dollars revolving credit facility (RCF), announced earlier this week.
With interest rate hedging, businesses that have loans can swap a variable interest rate for a fixed rate over a period of time.
In July, London-listed HSF noted that rising interest rates were pushing up borrowing costs on its $600 billion set of debts.
This prompted the company to review its debt structure at the time as it sought to mitigate its interest rate risk.
This review resulted in a five-year period $700 million Revolving credit facility announced Monday (October 3). Citibank was the lead arranger for this RCF, which HSF said would help reduce its interest rate risk.
HSF announced on Wednesday (October 5th) that it was also pursuing – now completed – interest rate swap agreements on its debt.
As a result of these exchanges, interest on all debt drawn by HSF is now fixed at 5.71%including the debt margin, until January 2, 2023.
From then on, the company will enter into interest rate swaps to hedge $540 million of its debt.
Of this total of $540 million, $340 million will be hedged until the RCF matures on September 30, 2027 at a fixed rate of 5.67% including debt margin.
Another $200 million will be covered until January 3, 2026 at a fixed rate of 5.89%including debt margin.
The balance remains uncovered after that date to provide flexibility in the operation of the RCF, the company added.
HSF’s old $600 million facility, on the other hand, had a line of credit of 3.25% on the variable rate of London Interbank Offered Rate (LIBOR).
At the time of publication, the one-month LIBOR stands at 3.185% – which means that, without its new RCF and its fixed interest rates, Hipgnosis would currently pay a 6.43% rate in relation to its debt.
With its new interest rate swaps now secured, HSF has hedged against the possibility that LIBOR (itself a reflection of interest rates from various global banks) will rise in the future.
Merck Mercuriadisfounder and CEO of Hipgnosis Song Management, said of HSF’s new interest rate hedging transactions: “Along with the completion of our new revolving credit facility, the execution of these swaps concludes our refinancing .
“As debt markets have become increasingly unpredictable over the course of 2022, these new agreements provide long-term certainty and a stable platform to capitalize on tailwinds in the music industry.”
“As debt markets have become increasingly unpredictable over the course of 2022, these new agreements provide long-term certainty and a stable platform to capitalize on tailwinds in the music industry.”
Merck Mercuriadis, Hipgnosis Song Management
HCF today clarified that the cost of setting up both the RCF and interest rate hedging has been included in the principal amount under the RCF.
This gives the company certainty as to the amount of its fixed interest payment obligations over the term of these contracts.
Interest rate hedging has been one of the most viable solutions for companies struggling with millions of dollars in debt as central banks around the world continue to raise interest rates in an effort to control the surge in inflation.
In addition to Hipgnosis Songs Fund, the Hipgnosis Group founded by Merck Mercuriadis includes an investment advisory firm Hipgnosis song management (HSM), and Capital of Hipgnosis Songs (HSC).
The last was formed via $1 billion with the backing of private equity giant black stone in 2021.The music industry around the world
