On the heels of a number of less-than-ideal developments, Hipgnosis Songs Fund (LON: SONG) has nixed a deliberate dividend on account of a considerably diminished estimate of incoming Phonorecords III royalty funds. Following the announcement, SONG plummeted to a record-low worth.
Hipgnosis Songs Fund right now revealed the dividend setback and outlined the anticipated falloff in Phonorecords III compensation. On the previous entrance, September twenty first had seen execs decide to an “interim dividend,” amounting to “1.3125 pence per share,” for the interval spanning April 1st by way of June thirtieth.
Now, although, this proposed dividend – which might have paid out on October twenty seventh, seemingly coinciding with a pair of vital investor conferences – has been placed on ice. Explaining the information by way of a proper launch, HSF communicated that its catalog appraiser had “materially diminished its expectations of industry-wide retroactive funds in relation to” Phonorecords III.
In August, the Copyright Royalty Board (CRB) formally finalized a beforehand issued Phonorecords III willpower, setting in movement a double-digit mechanical-rate hike for on-demand streaming companies for the 2018-2022 window.
Digital Music Information has coated the Phonorecords III rate-setting course of and the extra rapidly permitted Phonorecords IV at size. However briefly, the Phonorecords III information meant, amongst different issues, that gamers together with Hipgnosis would obtain retroactive funds for using their works on platforms like Spotify all through the talked about half-decade stretch.
“The Firm owns almost 25% of all Songs performed over a billion occasions on Spotify,” Hipgnosis Songs Fund boasted in its most up-to-date earnings report, additionally touting the accrual of “a complete of $16.1 million for the CRB III retroactive income and an additional $5.6 million for CRB III uplift in the course of the monetary 12 months.”
In line with the announcement message revealed by Hipgnosis Songs Fund (and attributed to outgoing chairman Andrew Sutch) right now, nonetheless, the aforesaid funding advisor, Massarsky Consulting proprietor Citrin Cooperman, has sliced its forecast for retroactive Phonorecords III compensation.
(The IP-valuation methodology of Citrin Cooperman and the corresponding results on Hipgnosis borrowing have lengthy been the topic of investor dialogue and evaluation.)
“Consequently,” HSF continued, “the Board now expects to obtain considerably decrease retroactive funds in relation to CRB III and subsequently intends to scale back its CRB III retroactive accrual to $9.9m, from $21.7m as at 31 March 2023.
“Accordingly, in consequence of this unwinding of the CRB III accrual, the Board has determined to withdraw the proposed interim dividend of 1.3125 pence per share introduced on 21 September 2023 to be able to guarantee compliance with its revolving credit score facility’s Fastened Cost Cowl Ratio covenant,” proceeded the Fund.
Plus, Hipgnosis Songs Fund mentioned that it was in talks with “lenders to keep away from any potential impacts of the unwinding of the CRB III accrual on future Fastened Cost Cowl Ratio covenant compliance.”
Increasing upon the factors and the above-noted impression of catalog valuations on HSF’s operational specifics, the Monetary Instances in a newly revealed piece questioned the Phonorecords III royalties dip and explored the broader significance of the corporate’s “newest self-inflicted disaster.”
In the meantime, Reuters has touched on the plans of sure main Hipgnosis buyers to vote towards the urged sale of quite a lot of catalogs, together with the rights to the work of Shakira and Barry Manilow, to Blackstone-powered Hipgnosis Songs Capital for $440 million.
Amid experiences that different key HSF stakeholders would oppose the deal on account of a perceived lack of transparency and a lower-than-ideal sale worth, London-based Asset Worth Buyers, which is claimed to handle a 5 % Hipgnosis Songs Fund stake on behalf of institutional purchasers, intends to vote towards the proposal, per Reuters.
When the market closed, Hipgnosis Songs Fund inventory was price 67 pence (at the moment 82 cents) per share, reflecting a 9.34 % slip from Friday, the initially highlighted record-low closing worth, and a market cap of £893.61 million ($1.09 billion).