Proxy Solicitation & Information Statement • Aug 6, 2019
Proxy Solicitation & Information Statement
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or the action you should take, you should immediately consult your stockbroker, bank manager, solicitor, accountant or other appropriately qualified independent financial adviser, authorised under the UK Financial Services and Markets Act 2000 or, if you are in a territory outside the United Kingdom, an appropriately authorised independent financial adviser.
If you have sold or otherwise transferred all your Shares in Hipgnosis Songs Fund Limited (the "Company"), please send this Circular, but not the accompanying Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for delivery to the purchaser or transferee. However, such documents should not be distributed, forwarded or transmitted in or into Canada, Australia, South Africa or Japan or into any other jurisdiction if to do so would constitute a violation of the relevant laws and regulations in such other jurisdiction. If you have sold or transferred only part of your holding of Shares please consult the bank, stockbroker or other agent through which the sale or transfer was effected.
The Shares are, and following the Extraordinary General Meeting will continue to be, admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange.
The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). The Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, pledged or otherwise transferred, directly or indirectly, into or within the United States, or to or for the benefit of U.S. persons (as defined in Regulation S under the Securities Act) ("US Persons") except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States and in a manner which would not require the Company to register under the Investment Company Act.
(an investment company limited by shares incorporated under the laws of Guernsey with registered number 65158)
The Proposal described in this Circular is conditional on approval from Shareholders, which is being sought at an Extraordinary General Meeting of the Company to be held at 2nd Floor, Trafalgar Court, Les Banques, St. Peter Port, Guernsey, GY1 2JA at 3:00 p.m. on 21 August 2019. Notice of the Extraordinary General Meeting is set out at the end of this Circular.
The Company is registered with the Guernsey Financial Services Commission ("GFSC") under the Registered Collective Investment Scheme Rules 2015 (the "Rules") and the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended. Notification of the Proposal has been given to the GFSC in accordance with the Rules. Neither the GFSC nor the States of Guernsey Policy Council take any responsibility for the financial soundness of the Company or for the correctness of any of the statements made or opinions expressed with regard to it.
Shareholders are requested to return the Form of Proxy enclosed with this Circular. Shareholders are asked to complete, sign and return the Form of Proxy in accordance with the instructions printed thereon, by one of the following means: (i) in hard copy form by post, by courier, or by hand to the Company's Registrar, Computershare Investor Services (Guernsey) Limited c/o The Pavillions, Bridgwater Road, Bristol, BS99 6ZY; or (ii) in the case of CREST members, by utilising the CREST system service (details of which are contained in this Circular), in each case as soon as possible and, in any event, not later than 3:00 p.m. on 19 August 2019. The lodging of a Form of Proxy will not prevent a Shareholder from attending the Extraordinary General Meeting and voting in person if they so wish.
This Circular should be read as a whole. Your attention is drawn to the letter from the Chairman of the Company which is set out on pages 4 to 8 of this Circular and which recommends that you vote in favour of the Resolution to be proposed at the Extraordinary General Meeting. Your attention is drawn to the section entitled "Action to be Taken by Shareholders" on page 7 of this Circular, and to the section entitled "Risk Factors" on pages 5 to 6 of this Circular. The definitions used in this Circular are set out in Part II on pages 9 to 10.
| EXPECTED TIMETABLE OF EVENTS | 3 |
|---|---|
| PART I – LETTER FROM THE CHAIRMAN | 4 |
| PART II – DEFINITIONS | 9 |
| NOTICE OF EXTRAORDINARY GENERAL MEETING | 11 |
| Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting* |
3:00 p.m. on 19 August 2019 |
|---|---|
| Extraordinary General Meeting | 3:00 p.m. on 21 August 2019 |
| Announcement of the result of the Extraordinary General Meeting | 21 August 2019 |
Each of the times and dates in the expected timetable of events may be extended or brought forward without further notice. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a RIS provider. All references to times are to London times.
*Please note that the latest time for receipt of the Forms of Proxy in respect of the Extraordinary General Meeting is forty-eight hours (excluding weekends) prior to the time allotted for the meeting.
(an investment company limited by shares incorporated under the laws of Guernsey with registered number 65158)
Andrew Sutch (Chairman) Paul Burger Simon Holden Andrew Wilkinson
Directors Registered Office P.O. Box 286, 2nd Floor Trafalgar Court, Les Banques St Peter Port Guernsey GY1 4LY
6 August 2019
Dear Shareholders,
The Company is a closed ended investment company which launched in June 2018, with its ordinary shares of no par value in the capital of the Company (the "Shares") first being admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 11 July 2018 ("Admission"). The Company raised over £200 million on Admission, to offer investors a pure-play exposure to Songs and their associated musical copyrights. The Company invests in proven hit songs and associated musical intellectual property rights which produce predictable and reliable cash-flows to achieve its investment objective of providing its Shareholders with an attractive and growing level of income, together with the potential for capital growth. Since Admission, the Company has raised a further £141.5 million of equity capital and has acquired, or entered into exclusivity agreements to acquire, 41 Catalogues.
On 6 August 2019, the Company announced that it was seeking approval from Shareholders to adopt a new borrowing policy pursuant to which the Company would be able to incur indebtedness of up to a maximum of 40 per cent. of its Gross Asset Value (the "Proposed Borrowing Limit").
This proposed change to the borrowing policy is considered to constitute a material change to the Company's published Investment Policy. Therefore, as stated in its prospectus dated 27 June 2018, the Company is required to obtain the approval of the Company's Shareholders by way of an ordinary resolution.
The purpose of this Circular is to convene the General Meeting at which the Resolution will be proposed, to provide shareholders with details of the Proposal, to explain why the Board considers the Proposal to be in the best interests of the Company as a whole and to recommend that the Shareholders vote in favour of the Resolution.
The Company is proposing to amend its Investment Objective and Policy in the manner set out in paragraph 3 of Part I of this Circular (the "Proposal").
The Proposal is subject to the approval of Shareholders by way of ordinary resolution (the "Resolution"), and this Circular contains a notice of the Extraordinary General Meeting at which the Resolution to approve the Proposal will be considered. The Proposal, if approved, will result in the Company adopting the revised Investment Objective and Policy with effect from the conclusion of the Extraordinary General Meeting.
In the event that the Resolution to be proposed at the Extraordinary General Meeting is not passed, the Company will continue to operate under its current Investment Objective and Policy.
The Board considers that the Proposal is in the best interests of Shareholders as a whole and accordingly recommends that Shareholders vote in favour of the Resolution to be proposed at the Extraordinary General Meeting.
For the reasons set out in paragraph 4 below, the Company is proposing to amend its Investment Objective and Policy to increase the limitations on the Company's borrowing powers from 20 per cent. of Net Asset Value to 40 per cent. of Gross Asset Value, calculated at the time of drawdown, in addition to clarifying the purposes for which such leverage will be utilised and the types of leverage that may be used. Other minor amendments have been made to the Investment Objective and Policy to remove certain forward-looking language in order to reflect the fact that the Company is now in existence and has been implementing its Investment Objective and Policy for over a year.
It is proposed that, if the Proposal is approved, the new Investment Objective and Policy of the Company will be as follows:
The Company's objective is to provide Shareholders with an attractive and growing level of income, together with the potential for capital growth, from investment in Songs and associated musical intellectual property rights, in accordance with its Investment Policy.
The Company's investment policy is to diversify risk through investment in a Portfolio of Songs and associated musical intellectual property rights. The Company seeks to acquire 100 per cent. of a songwriter's copyright interest in each Song, which would comprise their writer's share, their publisher's share and their performance rights. In appropriate cases, however, the Company may not acquire all three elements of the songwriter's interest. The Company acquires interests in Songs which are sole authored or co-authored. The Company may also acquire interests in Songs jointly with another purchaser. Each Song is considered by the Company to be a separate asset.
The Company, directly or indirectly via portfolio administrators, enters into licensing agreements, under which the Company receives payments attributable to the copyright interests in the Songs which it owns. Such payments may take the form of royalties, licence fees and/or advance payments, including:
The Company focuses on delivering income growth and capital growth by pursuing efficiencies in the collection of payments and active management of the Songs it owns.
The Company may acquire Songs for consideration consisting of cash, Shares or a combination of cash and Shares, and payment of part of the consideration may be on deferred terms.
Whilst the Company does not intend to sell the Songs it owns, it may make disposals of Songs where it considers such a disposal to be in the best interests of Shareholders.
The Company invests its assets and manages the Songs it acquires with the objective of constructing a high quality and diversified Portfolio of Songs. The Company acquires Catalogues from a number of different songwriters, which includes Songs diversified across music genres and sung by numerous recording artists. The Company is subject to the following investment restrictions:
(a) the Company holds interests in a minimum of 300 Songs;
The Company's uninvested capital may be invested in cash, cash equivalents, near cash instruments and money market instruments.
The Company may utilise derivatives for efficient portfolio management. In particular, the Directors may engage in full or partial foreign currency hedging and interest rate hedging. The Company does not, and will not, enter into such arrangements for investment purposes.
The Company may incur indebtedness of up to a maximum of 40 per cent. of its Gross Asset Value, calculated at the time of drawdown.
Such borrowings or leverage may be used for the acquisition (directly or indirectly) of Songs or Catalogues in accordance with the Investment Objective and Policy. In addition, the Company may utilise borrowings for working capital and interest rate hedging purposes. Any such leverage will primarily comprise revolving credit facilities to increase acquisition and cashflow flexibility although bank borrowings, overdraft, public or private bond issuances may be used.
Any material change to the Company's Investment Objective and Policy will be made only with the prior approval of the Shareholders by ordinary resolution.
In the event of a material breach of any of the investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the Company through an announcement made via a RIS."
The Company focuses on acquiring Catalogues which are built around proven hit Songs. These Songs produce highly predictable and reliable long term cash flows which are uncorrelated to equity markets and global economic performance, and which are therefore well suited to supporting leverage. Having acquired, or entered into exclusivity agreements to acquire, 41 revenue-producing Catalogues, the Board believes the increase in the limitations on the Company's borrowing powers set out in the Proposed Borrowing Limit, provide the Company with a level of borrowing powers that is more appropriate to the nature and attributes of its assets. The Board believes this to be in the best interests of Shareholders as a whole.
It remains the intention of the Company to use borrowing tactically for short term purposes, which provides the Company with greater flexibility than if its sole source of finance was equity capital. The Proposed Borrowing Limit would, therefore, increase the Company's ability to use borrowings for working capital, interest rate hedging purposes, and for short-term bridging purposes to finance the acquisition of Songs.
In considering your decision in relation to the Proposal, you are referred to the risks set out below.
The Company, pursuant to its current Investment Objective and Policy, may utilise borrowings for a range of purposes, which may include for working capital and interest rate hedging purposes, and for the purposes of financing the acquisition of Songs. If the Proposal is approved at the Extraordinary General Meeting, the Company will be able to borrow up to an aggregate amount equivalent to 40 per cent. of Gross Asset Value, calculated at the time of drawdown. While such increased leverage limit provides an increased level of flexibility and presents more opportunities for increasing total NAV return, it can also have the opposite effect of increasing and amplifying losses. Whilst the Company's leverage is intended to be short term and is not structural in nature, if the income and returns on the Songs acquired with borrowed funds are less than the costs of the leverage (noting that, where the Company deploys a higher level of leverage, such costs are likely to increase), the Net Asset Value will decrease. The effect of the use of leverage, even where taken out for working capital, for bridging or for interest rate hedging purposes, is to increase the Company's investment exposure. The result of which is that, in a market that moves adversely, the possible resulting loss to Shareholders' capital would be greater than if leverage was not used and could be greater still where the Company has utilised a higher level of leverage under the increased Proposed Borrowing Limit.
The Company intends to use borrowing tactically for short term investment purposes, with the intention of repaying such borrowings, in the short term, with the net proceeds of equity issuances carried out from time to time. There can be no guarantee, however, that the Company will be able to raise equity capital on this basis in the short term. If the Company is unable to repay the borrowings over its intended timeframe, it will be required to maintain such level of borrowing for longer and may be required to extend the term of its existing borrowing arrangements, which, in each case, is likely to increase the costs of such leverage. The obligation to pay such increased costs of leverage could have an adverse effect on the returns to Shareholders and the market value of the Shares and, if the income and returns on the Songs acquired with borrowed funds are less than the costs of the leverage, the Net Asset Value will decrease. In addition, such delays would reduce the Company's ability to borrow further amounts until such drawn down amounts are repaid, which reduces the Company's flexibility to use such borrowing limits tactically, for example, to finance the acquisition of Songs. In such circumstances, the Company may be unable to complete an acquisition that it considers to be attractive, whether on its preferred timeframe or at all, which may have an adverse effect on the returns to Shareholders and the market value of the Shares.
An Extraordinary General Meeting of the Company will be held at 3:00 p.m. on 21 August 2019 at 2nd Floor, Trafalgar Court, Les Banques, St. Peter Port, Guernsey, GY1 2JA for the purpose of approving the Proposal. The business to be considered at the Extraordinary General Meeting is contained in the Notice of Extraordinary General Meeting set out at the end of this Circular.
At the Extraordinary General Meeting, the Resolution will be proposed as an Ordinary Resolution and, as such, will require the approval of a majority of members present by a show of hands or, if a poll is demanded, the total voting rights held by Shareholders cast at the Extraordinary General Meeting (in each case, whether voted by Shareholders in person or by proxy).
The quorum for the Extraordinary General Meeting will be two or more members present in person or by proxy. If within half an hour after the time appointed for the Extraordinary General Meeting a quorum is not present, the Extraordinary General Meeting shall stand adjourned to the same day in the next week at the same time and place (or such other day, time and place as the Chairman may determine) and no notice of adjournment is required. If at such adjourned meeting a quorum is not present within five minutes from the time appointed for the holding of the meeting, those members present in person or by proxy shall be a quorum.
If you are a Shareholder, you will find enclosed with this Circular the Form of Proxy for use at the Extraordinary General Meeting. Whether or not you intend to be present at the Extraordinary General Meeting, you are asked to complete the Form of Proxy in accordance with the instructions printed thereon and return the Form of Proxy to the Company's Registrar, Computershare Investor Services (Guernsey) Limited, by one of the following means:
In each case, the Form of Proxy must arrive by the time and date specified within. To be valid, the relevant Form of Proxy should be completed in accordance with the instructions accompanying it and lodged with the Company's Registrars by the relevant time.
The completion and return of the Form of Proxy will not preclude you from attending the Extraordinary General Meeting and voting in person if you wish to do so.
The Board considers that the proposal described in this Circular is in the best interests of Shareholders as a whole and accordingly recommends that Shareholders vote in favour of the Resolution to be proposed at the Extraordinary General Meeting.
The Directors intend to vote in favour of the Resolution in respect of their holdings of Shares, amounting to 92,500 Shares in aggregate (representing approximately 0.03 per cent. of the issued share capital of the Company (excluding any Shares held in treasury) as at 2 August 2019 (the latest practicable date prior to the publication of this Circular)).
Yours sincerely
Andrew Sutch Chairman
| "Articles" | the articles of incorporation of the Company in force at the date of this Circular |
|---|---|
| "Board" or "Directors" | the board of directors of the Company whose names are set out in Part I of this Circular |
| "Catalogue" | one or more Songs acquired from a single songwriter or recording artist |
| "Circular" | this document |
| "Company" | Hipgnosis Songs Fund Limited |
| "CREST" | the facilities and procedures for the time being of the relevant system of which Euroclear has been approved as operator pursuant to the CREST Regulations, in accordance with which Shares may be held in uncertificated form |
| "CREST Guernsey Requirements" |
Rule 8 and such other rules and requirements of Euroclear as may be applicable to issuers as from time to time specified in the CREST manual |
| "CREST Regulations" | the Uncertificated Securities Regulations 2001 (SI No. 2001/3755) and the CREST Guernsey Requirements, as amended from time to time |
| "Euroclear" | Euroclear UK & Ireland Limited, the operator of CREST |
| "Extraordinary General Meeting" |
the extraordinary general meeting of the Company convened for 21 August 2019 at 3:00 p.m. |
| "Form of Proxy" | the form of proxy for use at the Extraordinary General Meeting |
| "GFSC" | the Guernsey Financial Services Commission |
| "Gross Assets" or "Gross Asset Value" |
the total value of the assets of the Company as determined by the Directors in their absolute discretion in accordance with the accounting policies adopted by the Directors, from time to time, to be adjusted so as to reflect the fair value of intangible assets such as Songs, as determined by the Directors and the Company's independent valuer from time to time |
| "Investment Company Act" | the US Investment Company Act of 1940, as amended |
| "Investment Objective and Policy" |
the Company's current investment objective and policy, which is proposed to be amended as set out in this Circular |
| "NAV" or "Net Asset Value" | the value of the Gross Assets of the Company less its liabilities (including accrued but unpaid fees) determined by the Directors in their absolute discretion in accordance with the accounting policies adopted by the Directors, from time to time, to be adjusted so as to reflect the fair value of intangible assets held at the relevant reporting date |
| "Notice of Extraordinary General Meeting" |
the notice convening the Extraordinary General Meeting, as set out at the end of this Circular |
| "Ordinary Resolution" | an ordinary resolution set out in the Notice of Extraordinary General Meeting and to be proposed at the Extraordinary General Meeting, which requires a majority of the Shareholders present in person or by proxy and entitled to vote and voting at the appropriate meeting |
| "Portfolio" | at any time, the portfolio of investments in which the assets of the Company are invested, comprising the entire collection of Songs acquired by the Company |
| "Proposal" | has the meaning given at paragraph 2 of Part I of this Circular |
|---|---|
| "Registrar" | Computershare Investor Services (Guernsey) Limited |
| "Resolution" | has the meaning given at paragraph 2 of Part I of this Circular |
| "RIS" | a regulatory information service |
| "Rules" | the Guernsey Authorised Closed-Ended Investment Schemes Rules 2015 |
| "Securities Act" | the US Securities Act of 1933, as amended |
| "Shareholders" | holders of Shares |
| "Shares" | ordinary shares of no par value in the capital of the Company |
| "Songs" | a songwriter's copyright interest (which would comprise their writer's share, their publisher's share and their performance rights) in a song, being a musical composition of words and/or music and the songwriter's proportion of the publishing rights of a single piece of music and, when construction permits, the collection of words and/or music as purchased by consumers |
| "US Persons" | as defined in Regulation S under the Securities Act |
(an investment company limited by shares incorporated under the laws of Guernsey with registered number 65158)
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will be held at 2nd Floor, Trafalgar Court, Les Banques, St. Peter Port, Guernsey, GY1 2JA at 3:00 p.m. on 21 August 2019 to consider and, if thought fit, to pass the following resolution by way of Ordinary Resolution.
THAT the Company modify its Investment Objective and Policy in the manner described in the Circular sent by the Company to its Shareholders on 6 August 2019.
Save where the context requires otherwise, the definitions contained in the Circular shall have the same meanings where used in this Resolution.
By order of the Board Registered office: Estera International Fund Managers (Guernsey) Limited P.O. Box 286, 2nd Floor Secretary Trafalgar Court, Les Banques
St Peter Port Guernsey GY1 4LY
Date: 6 August 2019
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