IPE & CMHY, Possible Merger

[Vince]

News today that the two Investment Trusts are proposing to merge, they are both managed by Rhys Davies, the merger will see an enlarged single IT with lower costs and economies of scale.

https://uk.finance.yahoo.com/news/inves ... 00738.html

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

[Vince]

This is slightly worrying for IPE holders

Dividend Policy

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. This is approximately equivalent to an annual dividend of 4.25p per share for IPE shareholders[1]. 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 Board of IPE and CMHY 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.

Whilst the target dividend of 11.0 pence per share would result in a reduction in the annual dividend income for IPE’s shareholders compared with IPE’s historical dividend pay-out, IPE shareholders will be paid a special pre-liquidation dividend of 0.75 pence per IPE ordinary share ahead of the transaction, which is expected to be approximately equal to the reduction for the first year following the merger.

[88V8]

I hold City Merchants for income.
The yield is better than 5% with virtually no gearing, albeit with just four months' cover.

IPE yields 7% with 13 months' cover, but gearing at 19%.

Both of them cut their divi in 2011 and have since been static.

I have quite a lot of fixed interest, so I don't mind a static divi. If a 5%+ yield can be sustained, I will be quite happy.

V8

[Newroad]

Hi All.

This one moves closer - the effective data if approved is 19 May 2021 if I understand correctly: https://www.londonstockexchange.com/news-article/IPE/publication-of-circular/14947259

A quick glance at the putative new board makes it look slightly more like a CMHY takeover of IPE (four of six board members, including the chair, from CMHY).

Big picture, I'm fairly agnostic on it - other than it might make my spreadsheet a little more complex for a short while!

Regards, Newroad

[monabri]

As noted above.

Old name: City Merchants High Yield Trust Ltd
New name: Invesco Bond Income Plus Ltd


City Merchants High Yield Trust Ltd is proposing to change its name to Invesco Bond Income Plus Ltd, subject to shareholder approval at the meeting to be held on 19th May 2021.

If approval is granted, the change of name is expected to take place on or shortly after the 19th May 2021.

[Newroad]

Thanks, Monabri.

Correct me if I'm wrong, but the mechanism appears to be a takeover in form (i.e. CMHY taking over IPE, then renaming itself BIPS).

If so, am I right for the numbers of shares in the new entity ...

CMHY -> BIPS: 1-1
IPE -> BIPS: ratio to be confirmed

I've had a look around, and I can't see the IPE -> BIPS ratio anywhere. Does anyone know if it is based on something pre-agreed or at the market price of a given time or over a given period?

No big deal, just want to get my spreadsheet up to date in readiness

Regards, Newroad

[Newroad]

Hi All.

Following the passing of the resolution today, I understand that 1 IPE share will convert to approximately 0.383084 CMHY shares (then to all become BIPS shares). This is based on 14th May pricing of 74.6470p vs 194.8580p.

There are other one-off dividend payments etc, the details of which may be found in the earlier links.

Regards, Newroad

[Gan020]

I am sad to see IPE go. It used to trade on a bigger discount to CMHY so better value for money. Perhaps it will actually do me a favour as BIPS will trade at a lower discount.

I couldn't really care about the dividend percentage change. I was always interested in the total return and until interest rates pick up IPE and CMHY were always going to be paying out more than the underlying yield.

I voted for the proposal in the end. I do like the reduction in fees and I would be more comfortable with a gearing closer to 10% rather than 20%. Having said that IPE managed the gearing appropriately (increasing gearing when prices low and reducing when high).

I note both trusts have been reducing their gearing over the last month. Bond prices look a little racy to me so I'm in agreement with that.

[Newroad]

Hi Gan.

I agree with most and perhaps all which you said.

Just waiting to see when the renaming to BIPS will formally happen - I need to do some small top ups of a formerly CMHY holding - I held off doing so yesterday (the normal II "free regular investing" day for the month). I thought getting involved in any new transactions whilst there were moving parts might give a admin issue, sooner or later.

Regards, Newroad

[Newroad]

PS II have just paid the special dividend (0.75p per share) into my account - speedy work!

[Vince]

I was initially sceptical, but this merger has grown on me, I always held both Trusts, then sold out of CMHY around 18 months ago, on hindsight, I should have sold IPE, it never fully recovered after the resignations of the two main men, I lost a bit of value but was happy with the income it paid out.

I agree with an earlier poster, reading between the lines, It looked as if IPE were struggling to maintain the dividend with a possible cut on the cards, if that were to be the case, the tie up with CMHY might see a rise in value and a more secure if slightly lower dividend, time will tell.

Vince

[Newroad]

Hi Vince.

Just bought some more CMHY this morning (as per earlier, not going to risk any IPE replacement trades). The quote was reasonably tight compared to what I recall last time I purchased (193p-194p) so maybe the greater scale is already having some effect.

I didn't get the sense that you did that a dividend cut may have been the driver, but that's not to say you aren't correct.

Regards, Newroad

[Vince]

Hi Vince.

Just bought some more CMHY this morning (as per earlier, not going to risk any IPE replacement trades). The quote was reasonably tight compared to what I recall last time I purchased (193p-194p) so maybe the greater scale is already having some effect.

I didn't get the sense that you did that a dividend cut may have been the driver, but that's not to say you aren't correct.

Regards, Newroad

Below is an extract from the March 1st announcement of the merger, it was alluded to by another poster on the other thread of the same event, the statement, "more sustainable basis" could imply that the current level of income wasn't fully sustainable, although you are correct, a dividend cut wasn't the driver of the merger, but possibly an implied push to holders to vote the merger through.

Sustainable income level: It is anticipated that the income yield payable to IPE shareholders will be placed onto a more sustainable basis as a consequence of the transaction. In addition, IPE shareholders will be paid a special pre-liquidation dividend of 0.75 pence per IPE ordinary share ahead of the transaction.

Vince

[Vince]

PS II have just paid the special dividend (0.75p per share) into my account - speedy work!

That was quick, I checked Halifax this morning and absolutely nothing has changed, still showing IPE holdings, although they are frozen from trading, nice rise for CMHY today so far, I wonder when the name change comes into effect??

[Newroad]

Hi Vince.

If I recall correctly, CMHY holdings weren't affected with II for me - could have traded throughout.

IPE started showing as zero value once the resolution passed on the 19th - maybe before - but the number of shares etc remained the same. Then (I think after trading closed yesterday, on the 20th) all my IPE was converted to CMHY and is currently showing as that.

At some point, CMHY will convert to BIPS no doubt.

Regards, Newroad

PS Big spread now (ii quoting 191p - 197p). Latest decent trade 194.12p

[Newroad]

Hi Vince et al.

Further to the earlier discussion, apparently CMHY becomes BIPS on Monday (24th May 2021) 8AM.

Might take the systems a short while to catch up, though they can prepare in advance over the weekend I suppose.

Regards, Newroad

[Newroad]

PS A bit of action in the uncrossing trade (final auction) today - £17K's worth at 199p!

[flyer61]

So I can update my spreadsheets what do we think the new annual dividend will be for CMHY = BIPS?

[Newroad]

Hi Flyer61.

11p per share (a yield of 5.76% or so based on the closing price of 199p).

Regards, Newroad

[Newroad]

Hi All.

All done and dusted from my perspective now

Trading as BIPS on the LSE
Showing as BIPS in II
Special dividend for former IPE shareholders paid into II account

Regards, Newroad