May 28, 2024

Hipgnosis Songs Fund, the company that played a huge role in the music-catalog gold rush of recent years, has abandoned plans to pay a dividend after drastically reducing the amount it expects to receive from royalty payments, according to the Guardian and other news reports.

The reduction stems from the U.S. Copyright Royalty Board’s decision last year to recalculate its royalty payments — as a result, the influential U.K. music rights valuer Citrin Cooperman has dropped the amount Hipgnosis Songs Fund can expect to receive in royalties from tracks played between 2018 and 2022 from $21.7 million to $9.9 million.

Hipgnosis Songs Fund’s shares dropped more than 10% in early trading after the news became public.

“The board now expects to receive significantly lower retroactive payments,” Hipgnosis said. “The board has decided to withdraw the proposed interim dividend.” The company said it could not pay an interim dividend without breaching covenants connected with its lenders.

The company, founded in 2018, helped drive the price of music catalogs to new heights by paying top dollar to acquire catalogs from a large number of top producers and songwriters as well as Neil Young, Barry Manilow, the Red Hot Chili Peppers, Shakira and many others, pointing to the durable valuations of such catalogs.

However, the company has seemed overextended in recent years as interest rates have risen and the price of available catalogs grew untenably expensive; its share price on Monday dropping to 65p, half of its value last year.

Russ Mould, investment director at AJ Bell, told the Guardian, “The investment company was set up to invest in music royalties, implying their regular cashflows would generate a growing stream of income for investors. Sadly, its 15 minutes of fame has gone up in smoke amid accusations of poor corporate governance, a disastrous attempt to sell some assets at a big discount to a private fund which its adviser also manages, and now a dividend crisis.”

In an effort to boost its cashflow, the company put forward a proposal to sell nearly a fifth of its catalogs for $440 million to a Blackstone fund run by Mercuriadis, at a significant discount.

The company is lookin at a continuation vote later this month that will determine whether it will continue with its existing management team. Its chairman, Andrew Sutch, has announced plans to retire.

Mould continued, “Investors will decide the future of Hipgnosis Songs Fund at a continuation vote on 26 October. It’s not looking good, given how the value of the company continues to decline and now it isn’t even paying a dividend – shocking given how income was meant to account for a key part of investment returns. It’s hard to see how the board of directors can put up with this chaos – perhaps it is time to oust the management team and bring in someone else.”

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