TIDMBPCR
RNS Number : 4541F
BioPharma Credit PLC
07 November 2022
BioPharma Credit PLC
7 November 2022
BIOPHARMA CREDIT PLC
(THE "COMPANY")
UPDATES TO THE DISCOUNT CONTROL MECHANISM
BioPharma Credit PLC (LSE: BPCR), the specialist life sciences
debt investor, announces the following updates to its Discount
Control Mechanism ("DCM") following consultation with certain
shareholders.
Under the terms of the DCM, described in the Company's
Prospectuses dated 1 March 2017 and 14 March 2018, if the shares of
the Company trade at a discount greater than 5 per cent. over a
three-month period (the "First Trigger"), the Company is required
to apply up to 50 per cent. of proceeds from debt repayments in
purchasing Company shares until such time that the two-week
discount is less than 1 per cent. In addition, if the discount is
greater than 10 per cent. over a six-month period (the "Second
Trigger"), the Company is required to apply up to 100 per cent. of
proceeds from debt repayments until such time that the two-week
discount is less than 1 per cent.
While the Investment Manager and the Board firmly believe in the
value of a discount control mechanism, they believe that purchasing
shares at certain discounts, as opposed to making new investments,
may not be in the best interest of shareholders:
-- There are significant friction costs involved in repurchasing
and later re-issuing shares. In the Company's experience these
expenses have averaged approximately 3 per cent. Therefore,
purchasing shares at discounts lower than 3 per cent. would erode
shareholder value.
-- While the near-term accretion from share repurchases may seem
attractive, this ignores the opportunity cost of foregoing new
investments with compelling return characteristics that would help
the continued diversification of the portfolio.
-- Share repurchases take time. The Company has acquired 35m
shares since 15 September, approximately 35 per cent. of the shares
traded in the market on the days the buyback was active at an
average price per share of $0.939.
-- Holding back cash to fund future repurchases, as opposed to
investing in new loans, has a significant opportunity cost (cash
drag). Funding new investments using debt while holding significant
cash is also not in the best interest of the Company.
As a result, the Investment Manager and the Board believe it is
in the best interest of the Company to update the DCM so that the
trigger levels remain at previous levels but provide for greater
flexibility as to when the Company can freely deploy capital:
-- The First Trigger will remain at a 5 per cent. discount to
NAV and the Company will be required to apply 50 per cent. of the
principal being returned to repurchase shares until such time that
the discount to NAV over a two-week period is less than 5 per cent.
(compared with less than 1 per cent. previously).
-- The Second Trigger will remain at a 10 per cent discount to
NAV and the Company will be required to apply 100 per cent. of the
principal being returned to repurchase shares until such time that
the discount to NAV over a two-week period is less than 5 per cent.
(compared with less than 1 per cent. previously).
-- The Board will consider future changes to the DCM if it
considers them to be in the best interest of the Company and the
shareholders.
-- The Company intends to continue to purchase shares
opportunistically with available capital even if the DCM triggers
have not been reached.
-- There will be no changes to the requirement of the Investment
Manager to use a portion of the proceeds earned as incentive
compensation to purchase shares under certain share price
scenarios.
Background
As of 1 September 2022, the three-month average NAV discount of
the Company's shares exceeded 5 per cent. Following that date, the
Company received $499 million in repayments so the Company would
have been required to use up to $250 million to repurchase shares,
until such time that the two-week discount became less than 1 per
cent. The Company has invested approximately $28 million buying
back shares since the DCM was triggered, leaving approximately $222
million that would not have been available to be deployed in new
investments until such time that the two-week discount is less than
1 per cent.
After adjusting for pre-existing commitments, the Company has
approximately $264 million in capital available to deploy in share
repurchases or new investments. If the Company were to hold back
$222 million, it would either (a) be prevented from taking full
advantage of near-term investment opportunities, and thereby limit
continued diversification, or (b) have to borrow funds under the
Company's existing credit facility to make investments and pay
interest on such loans while having a significant cash balance. As
a reference, the borrowing costs of the Company under the current
agreement are SOFR + 2.75 per cent. or approximately 7.00 per cent.
at current rates.
Please see below the complete DCM language as updated and as it
appears in the two Prospectuses. Terms not otherwise defined below
have the meaning given to them in the Company's prospectus dated 1
March 2017.
Revised DCM language
If, in any 3 month rolling period, the Shares have, on average,
traded at a discount in excess of 5 per cent. to the Net Asset
Value per Share (calculated by comparing the middle market
quotation of the Shares at the end of each month in the relevant
period to the prevailing published Net Asset Value per Share
(exclusive of any dividend declared) as at such month end and
averaging this comparative figure over the relevant period), the
Company will, subject to meeting its Target Dividend, use 50 per
cent. of the Company's capital proceeds generated after the
conclusion of such 3 month rolling period, to repurchase Shares at
least until such time as the Shares trade at an average discount of
5 per cent. or less to the Net Asset Value per Share over a 2 week
rolling period.
If, in any 6 month rolling period, the Shares have, on average,
traded at a discount in excess of 10 per cent. to the Net Asset
Value per Share (calculated by comparing the middle market
quotation of the Shares at the end of each month in the relevant
period to the prevailing published Net Asset Value per Share
(exclusive of any dividend declared) as at such month end and
averaging this comparative figure over the relevant period), the
Company will, subject to meeting its Target Dividend, use 100 per
cent. of the Company's capital proceeds generated after the
conclusion of such 6 month rolling period, to repurchase Shares at
least until such time as the Shares trade at an average discount of
5 per cent. or less to the Net Asset Value per Share over a 2 week
rolling period.
Previous DCM language
If, in any 3 month rolling period, the Shares have, on average,
traded at a discount in excess of 5 per cent. to the Net Asset
Value per Share (calculated by comparing the middle market
quotation of the Shares at the end of each month in the relevant
period to the prevailing published Net Asset Value per Share
(exclusive of any dividend declared) as at such month end and
averaging this comparative figure over the relevant period), the
Company will, subject to meeting its Target Dividend, use 50 per
cent. of the Company's capital and income proceeds generated after
the conclusion of such 3 month rolling period, to repurchase Shares
at least until such time as the Shares trade at an average discount
of 1 per cent. or less to the Net Asset Value per Share over a 2
week rolling period.
If, in any 6 month rolling period, the Shares have, on average,
traded at a discount in excess of 10 per cent. to the Net Asset
Value per Share (calculated by comparing the middle market
quotation of the Shares at the end of each month in the relevant
period to the prevailing published Net Asset Value per Share
(exclusive of any dividend declared) as at such month end and
averaging this comparative figure over the relevant period), the
Company will, subject to meeting its Target Dividend, use 100 per
cent. of the Company's capital and income proceeds generated after
the conclusion of such 6 month rolling period, to repurchase Shares
at least until such time as the Shares trade at an average discount
of 1 per cent. or less to the Net Asset Value per Share over a 2
week rolling period.
Enquiries
Buchanan
David Rydell / Mark Court / Jamie Hooper / Henry Wilson
+44 (0) 20 7466 5000
biopharmacredit@buchanan.uk.com
Notes to Editors
BioPharma Credit PLC is London's only specialist debt investor
to the life sciences industry and joined the LSE in March 2017. The
Company seeks to provide long-term shareholder returns, principally
in the form of sustainable income distributions from exposure to
the life sciences industry. The Company seeks to achieve this
objective primarily through investments in debt assets secured by
royalties or other cash flows derived from the sales of approved
life sciences products.
-Ends-
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END
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November 07, 2022 02:00 ET (07:00 GMT)
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