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City Merchants High Yield Trus (CMHY)

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Monday 01 March, 2021

City Merchants High Yield Trus

Proposed Merger with Invesco Enhanced Income Limited

1 March 2021

City Merchants High Yield Trust Limited

Proposed merger with Invesco Enhanced Income Limited

Introduction

The Board of City Merchants High Yield Trust Limited (“CMHY”) is pleased to announce that it has signed Heads of Terms with the Board of Invesco Enhanced Income Limited (“IPE”) in respect of a proposed merger with IPE to be effected by way of a shareholder approved contractual scheme of reconstruction by IPE and a transfer of assets to CMHY (the “Scheme”). The Scheme will be implemented on a Formula Asset Value (“FAV”) for FAV basis.

It is proposed that the enlarged entity will be renamed Invesco Bond Income Plus Limited (“BIPS”) which, based on the existing net assets of CMHY and IPE, would have net assets in excess of £300 million. The current fund manager of both CMHY and IPE, Rhys Davies, will continue as the fund manager of BIPS.

(The above proposals are referred to herein as the “Proposals”.)

The Board believes that the Proposals will enable CMHY shareholders to benefit from the greater economies of scale that are expected to result from the enlarged asset base of BIPS.

Benefits of the Proposals to CMHY Shareholders

The Board believes that the Proposals have a number of benefits for CMHY shareholders:

  • Greater scale through the combination of similar investment portfolios: CMHY and IPE are managed by the same fund management company and investment manager and with a similar investment style. Rhys Davies currently manages both companies with a good track record and does so with a similar investment objective of high income and a focus on high-yield fixed-interest securities. There is a high degree of overlap between the two investment portfolios.
  • Lower management fee arrangements: In connection with the Proposals, it has been agreed with Invesco Fund Managers Limited (“IFML”) that the management fee will be reduced to an annual amount equal to 0.65 per cent of the total assets less current liabilities to reflect the larger size of BIPS. This is a reduction from the current annual management fee payable by CMHY of 0.75 per cent of total assets less current liabilities.
  • Lower ongoing charges: In addition to lower management fees, the other costs of BIPS will be spread across a larger asset base resulting in further economies of scale and a reduction on ongoing charges.
  • Improved liquidity: The Board expects that the enlarged entity will benefit from greater liquidity in its shares.
  • Potential for strong share price rating: The Board believes that the above benefits should assist the shares in maintaining a strong rating as the greater scale of BIPS is expected to result in broader market appeal.

The Proposals will be subject to the approval by the shareholders of both CMHY and IPE in addition to regulatory and tax approvals. A timetable and further details of the Proposals will be announced in due course.

Invesco Bond Income Plus Limited 

Investment Policy

The current CMHY investment objective and investment policy will not be amended in connection with the Proposals. Following completion of the Scheme, it is intended that the BIPS portfolio will continue to be managed on substantially the same basis as is the case for CMHY and IPE currently, subject to any legal or regulatory constraints.  

Management Arrangements

It is proposed that Rhys Davies, the current fund manager of both CMHY and IPE, will continue as fund manager of BIPS following shareholder approval of the Proposals.

In connection with the Proposals, it has been agreed with IFML that the management fee will be reduced to an annual amount equal to 0.65 per cent of the total assets less current liabilities to reflect the larger size of BIPS. This is a reduction from the current annual management fee payable by CMHY of 0.75 per cent of total assets less current liabilities.

In addition, the administration fee of £22,500 (plus RPI) currently payable by CMHY to IFML shall no longer by payable by BIPS.

BIPS will enter into a separate marketing agreement with IFML pursuant to which BIPS will pay an annual marketing fee of £45,000. This fee shall be reviewed by the parties on an annual basis.

All other terms of the management agreement with CMHY shall be unchanged following the implementation of the Scheme.

Dividend Policy

In recent years, CMHY has paid an annual dividend of 10.0 pence per share by way of four quarterly payments of 2.5 pence per share. In connection with the Proposals, it is proposed that BIPS adopt a dividend policy to target an annual dividend of 11.0 pence per share over a three year period following the implementation of the Scheme by way of 4 quarterly dividends of 2.75 pence per share. It is anticipated that dividends will be substantially covered by net income from the portfolio although BIPS will support the target dividend over this period through the use of revenue and capital reserves if necessary.

Thereafter, the Board of BIPS shall give consideration to its ongoing dividend policy, taking into account the annualised net income from its portfolio and the market environment at that time. 

This proposed dividend policy has been agreed between the Boards of CMHY and IPE in recognition of the differential in income distribution ratios adopted by each of the two companies and is intended to provide a path towards a longer-term sustainable income distribution to shareholders of BIPS.

Gearing

While the maximum gearing level for BIPS will remain at the same level as CMHY’s existing investment policy of 30 per cent. of total assets, it is intended that, immediately following the implementation of the Scheme, the net gearing of the combined portfolio will be approximately 10 per cent. of net assets.

Proposed Board

Following completion of the Proposals, BIPS will have Board representation from both CMHY and IPE and will be chaired by Tim Scholefield, current Chairman of CMHY.

Expected timetable

It is currently envisaged that a shareholder circular and notice of the general meeting setting out the details of the Scheme and seeking shareholder approval will be sent to shareholders in April 2021. The relevant general meetings are expected to be convened in May 2021.

The Chairman of CMHY, Tim Scholefield , commented:

“The Proposals will create a combined entity that will have greater scale and lower ongoing charges. The Board expects that the enlarged company will have broader appeal among investors and increased liquidity in the shares which should assist in maintaining a strong share price rating over the long-term. Given the similarities of the investment strategies of the two companies, there is a clear rationale for the merger with shareholders benefiting from greater economies of scale while retaining the expertise of the same management team and investment approach.”

For further information please contact:

JTC Fund Solutions (Jersey) Limited   
Hilary Jones
+44 (0) 15 3470 0000
Invesco Asset Management Limited     
Will Ellis 
Guy Short
+44 (0) 20 3753 1000
Winterflood Securities (Financial Adviser to CMHY) 
Neil Langford
Hande Derinkok
+44 (0) 20 3100 0000
J.P. Morgan Cazenove (Financial Adviser to IPE) 
William Simmonds
Alexis Owuadey
+44 (0) 20 7742 4000

Important Information

This announcement contains information that is inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014. The person responsible for arranging for the release of this announcement on behalf of CMHY is Hilary Jones of JTC Fund Solutions (Jersey) Limited.


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