Hipgnosis Songs Fund’s appetite for snapping up publishing catalogue knows no bounds, and for now, banks are backing its strategy. The UK-based company has secured a new ‘revolving credit facility’ worth £150m (around $188m) from a group of seven banks including JP Morgan. MBW reported that it is a refinancing of an existing £65m revolving credit facility negotiated with JP Morgan in August 2019.
(The definition is important here if you want to understand how Hipgnosis is going about its business. A revolving credit facility is effectively a line of credit arranged between a business and one or more banks, which has an agreed ceiling that the company can draw down as and when required. The ‘revolving’ part means that money can be withdrawn, repaid and then withdrawn again, unlike many other types of loans.)
Hipgnosis sees the new facility – including its timing – as a strong backing of its acquisitive business model. “We are very pleased to have been able to issue our first syndicated loan facility at incredibly good terms in these highly volatile markets whilst still being oversubscribed,” said COO Björn Lindvall. “Successful completion of this debt raising in the midst of a global pandemic is a testament to the confidence of investors in the robustness of Hipgnosis’ business and the evolution of songs as a valuable asset class,” added Gabrielle Wong, partner at the law firm that advised Hipgnosis, Herbert Smith Freehills.
Hipgnosis’ last set of interim financial results were published in December – the London Stock Exchange announcement is here, and the full report is here – covering the six months ended 30 September 2019. They revealed that it had invested £319.4m in 27 catalogues by the end of Q3 (and another £186.1m the following quarter) while raising £192.6m of ‘gross equity capital’ during the Q2-Q3 period, and another £231m after it, through issuing shares. During that six-month period, Hipgnosis generated £22.6m in revenue from its portfolio of publishing rights, and it also cited an independent valuer’s view that the ‘fair value’ of its catalogues had grown by £16.6m over the six months.
Hipgnosis’ aggressive acquisitions strategy – and the fundraising and loans supporting it – are inevitably a topic of keen discussion elsewhere in the publishing industry. For example, we noted with interest MBW’s interview yesterday with Round Hill Music’s CEO Josh Gruss, who said “I have to give credit to groups like Hipgnosis for exploring the London Stock Exchange and finding new areas of demand for the supply” before later suggesting that his own company’s fundraising strategy is “very different from raising a lot of money on the London Stock Exchange, for one example, where I imagine your shareholders are scrutinising your cash burn and worrying about you sitting on a pile of cash if you’re not spending. That could put you under some sort of time pressure to spend that money…”
Hipgnosis has always talked about its business as being based on strong foundations: songs, in publishing catalogues whose value will hold up and even grow over time in the streaming era. While it’s true that securing credit facilities during a global pandemic is impressive, scrutiny of the solidity of this aspect of Hipgnosis’ business model will continue in the months ahead, as may questions about how it may play into the company’s ultimate exit or endgame.