US Solar Fund, an investment trust which invests in solar power assets in the US, has announced it will return capital to investors via a fixed tender offer and revise its dividend policy. It is also looking to refinance its senior debt facilities through US private debt markets.
The proposed changes come less than one month before the company’s annual general meeting on 21 May. An additional company meeting will also take place on the same day, where the proposed tender offer will be discussed by shareholders. A circular will be sent out to shareholders ahead of this meeting within the next week.
The changes come following a full year of the trust trading on a discount to its net asset value of more than 10%. A number of changes to the trust have either been proposed or have taken place over the last year in a bid to bolster lacklustre performance, including widening its investment remit and replacing its investment manager New Energy Solar Manager with Amber Infrastructure.
As of today (24 April), however, US Solar Fund is still trading on a 42.2% discount and is 55% geared, according to AIC data.
Tender offer and dividend policy
The trust is looking to roll out a fixed price tender offer at $0.764p per share, based on its 31 December 2023 NAV of $0.78p per share. This means costs for administering the tender offer would come in at less than 2%. Investors can choose to either sell some or all of their shares, subject to a limit of $19m being returned to shareholders.
The trust’s board has also decided to reduce its 2024 dividend target from $0.0566 per share, down to $0.0225 per share, in a bid to improve its dividend coverage. US Solar Fund’s operational cash dividend coverage stood at 0.5x at the end of last year, while the trust currently yields 12.5%.
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Its performance has also struggled in total return terms, with the trust’s underlying portfolio having fallen in value by 38.4% over the last year alone, compared to its average peer’s loss of 22.1%, according to data from FE Fundinfo. It has also lost 39.1% over three years, more than double the loss of its average peer over this time frame.
Refinancing plans
In a bid to improve both its cash dividend coverage and its investment performance, the board is considering refinancing via long-dated US private debt. This responsibility will be placed in the hands of US Solar Fund’s investment manager Amber, according to the board, and will require the trust to obtain an investment grade rating.
“Based on the indicative terms received from potential lenders and brokers, the board believes that the US private debt market could provide an attractive source of debt capital which is well-matched to the long-dated, fixed nominal contracted payments, paid by investment-grade counterparties, that comprise USF’s revenues,” it said.
“If successful, expected outcomes of the refinancing may include additional capital becoming available to return to shareholders. This capital could include any refinancing proceeds not used to repay existing facilities, the release of the cash which currently supports a letter of credit and any proceeds from breaking the interest rate derivatives associated with the current debt facilities.
“A successful refinancing is likely to result in an increase in operational cash dividend coverage for 2025 and beyond.”
The board believes this process will be completed during Q4 this year, subject to market conditions.
