As expected, GLI Finance (GLI) has announced measures to improve its balance sheet and help it to continue paying a 5p per share annual ordinary dividend and possibly provide additional funds to grow its loan book. GLI will seek shareholder approval to issue £20-40m of new zero dividend preference shares maturing in 2020 (2020 ZDP shares) and a potential issue of convertible unsecured bonds (CULS) to replace an existing loan facility. The EGM will take place on 21 December 2015 and the listing of the 2020 zeros on 22 December 2015.
The 2020 ZDP shares will mature on 21 December 2020 and will be subordinate to the existing issue of zeros (2019 ZDP shares). They will be issued with a gross annual return of 7.5% over their five-year life, higher than the existing zeros, which offer a yield of 6.5%, and the average market yield of zeros with a similar maturity issued by other companies, which is around 4.2%. The 2020 ZDP shares will be offered to existing ordinary shareholders and 2019 ZDP shareholders by way of an open offer and there will also be a placing. The proceeds will be used to pay down debt paying interest at 11% per year (currently £24.89m), with any excess invested in loans yielding around 10-11% per year sourced from GLI platforms.
GLI has an existing borrowing facility with an 11% interest rate and is seeking to replace this facility with a convertible bond issue at a lower interest rate. The CULS would be converted into new ordinary shares at a premium to the current share price. GLI is seeking ordinary shareholder approval to disapply the pre-emption rights to increase its flexibility when making an issue of CULS.
GLI has stated its ambition to issue enough zero dividend preference shares, which do not pay interest, to fund its investment in alternative finance platforms, which do not currently produce dividends for GLI. An issue of £40m would bring the two into balance. We discussed this desire in more detail in our outlook note of 11 November 2015. The measures announced today are in line with those we envisaged in that note and included in our forecasts, which we will leave unchanged until the transactions are completed. To cover its dividend with cash, earnings GLI would need to remit dividends from its asset manager, together with platform investments. The shares offer a yield of 11%, a premium over the listed loan funds, which offer a yield of around 8%; in addition, there is the prospect of capital gains from GLI’s platform investments.