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Woodford trust told to stop new investments in debt wrangle

Woodford trust told to stop new investments in debt wrangle

Neil Woodford cannot make any new investments in his Patient Capital investment trust, after triggering provisions in a debt agreement.

In an announcement to the stock exchange today (6 September), the trust's board revealed the fund's falling net asset value had meant an agreement to limit borrowings to an amount based on the value of both the quoted and unquoted holdings had been breached.

The trust said its bank had agreed to be more "flexible" around the £113m of debt the trust has taken out in exchange for an increased rate of interest, but in the meantime the trust has agreed to make no further investments while it attempts to get rid of certain unquoted assets without the prior consent of the lender.

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The rules governing the trust's borrowing policy allow Mr Woodford to borrow up to £150m or 20 per cent of the trust's NAV.

While the level of debt has been falling recently, after a commitment by board to do this, the trust's gearing has increased to 17.1 per cent as a result of the recent reduction in the trust's NAV. 

The bank, Northern Trust, has agreed to allow the fund manager time to sell assets and get the debt level down. 

In exchange for this, the bank has upped the interest rate from the current Libor plus 1.35 per cent to Libor plus 1.5 per cent. The interest on the debt is ultimately paid by investors in the trust, as the bank gets paid from the returns made on investments. 

The stock exchange announcement read: "The company has agreed with its lender greater flexibility around certain obligations relating to the borrowing base for a period of time while the company pursues the disposal of certain unquoted assets.

"[The trust] has agreed to make no further investments during this time without the prior consent of the lender (such consent already provided in relation to certain existing commitments).

"The board is continuing to monitor the level of gearing against the borrowing base and as previously announced, [the trust] will seek to reduce borrowings over time as realisations are achieved.”

The shares of the trust have fallen from 77p to the current level of 43p since June.

The recent write down of the value of IH Holdings had pushed down the trust's NAV. Several advisers have commented that the share price may now have fallen to a level where they are an attractive investment.

The trust's board has previously stated they are speaking with other fund managers about the future of the fund.

Patient Capital has lost 54.5 per cent over the past three years while its sector, the AIC Growth Capital, has lost 18.9 per cent.

A representative of Woodford Investment Management declined to comment.

david.thorpe@ft.com