The Woodford Patient Capital Trust faces higher borrowing costs and tighter lending conditions as its net asset value fluctuates with Neil Woodford now required to seek permission from Northern Trust before making any investment.
In exchange, Woodford’s investment trust has been granted more flexibility to exceed its borrowing base as unquoted holdings within the trust cause its net asset value to fluctuate.
Borrowing costs have risen from Libor +1.35% to Libor +1.5%, a regulatory filing published on Friday afternoon revealed.
Tilney managing director Jason Hollands said: “While higher borrowing costs are a negative, in the current circumstances, some additional headroom on the covenants is clearly a bigger priority.
“I think some investors will appreciate this situation and the rationale, but the risk is that it draws attention to gearing and spooks those investors who may not have previously considered this.”
WPCT gearing restrictions
For a set period, which is not being disclosed, Woodford will have more flexibility for the net asset value of quoted and unquoted companies to breach borrowing limits. The relaxed borrowing limits are meant to give Woodford time to dispose of “certain unquoted assets”.
During this time, WPCT has agreed to make no further investments without the consent of Northern Trust. However, consent has already been provided “in relation to certain existing investments”.
A WPCT spokesperson would not confirm what these were or the amount committed.
In the week after Woodford Equity Income suspended, the equities manager invested a further £25m in Proton Partners and $10m (£8m) in Evofem, due to “historical commitments”.
While absolute borrowing in the trust has fallen from £126m on 26 June 2019, when the board updated shareholders about its intention to reducing gearing, to £113.7m in the latest update, falls in net asset value mean the gearing position has moved from 16.8% to 17.1%.
The existing arrangements had limited WPCT to gearing of 20%.
Despite the setback, WPCT told Portfolio Adviser it is still on track to reach its reduced gearing targets outlined by the board in June. Before the end of 2019, WPCT aims to have gearing below 10% and to be ungeared by the end of Q2 2020.
