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Refinancing deal sees Literacy Capital benefit to the tune of £20m


Investment trust Literacy Capital [LON:BOOK] confirmed this week that it has completed the refinancing of one of its largest portfolio companies with new lenders. These new debt facilities released cash to shareholders, including Literacy, with the fund’s share amounting to £20m.

The transactions also included a larger re-organisation of the shareholder base, which saw some minority shareholders exit and realise their holdings. As a result, Literacy benefits through its shareholding in the undisclosed portfolio company increasing, whilst also returning substantial cash to the fund.

Literacy Capital is an investment trust that was launched in 2017 by Paul Pindar and Richard Pindar, before it listed on the London Stock Exchange’s main market in June 2021. The fund focuses on opportunities to invest for the long-term in growing private UK businesses where a clear route to creating additional value can be seen.

Literacy Capital to pay down Revolving Credit Facility

The new debt facilities will give the business access to more funding, allowing it to be more acquisitive and invest more into growth. This ought to position the company positively for the future and help the company to contribute to further NAV uplifts in future periods.

Literacy Capital said it intends to use the cash proceeds to repay the majority of the amount drawn under its Revolving Credit Facility, before recycling these proceeds into new investments.

This refinancing represents a further example of Literacy’s portfolio companies growing maturity and interest from institutional funders in the fund’s portfolio companies. It also demonstrates the active involvement in managing the fund’s interests, ensuring that capital is recycled and deployed efficiently.

In line with recent announcements to the market, the current expectation is that Literacy will continue to receive meaningful cash inflows over the remainder of 2024, given the level of interest in its portfolio companies.

Signing and completion of the transaction has taken place, with £18.5m of cash received prior to Easter, with the balance expected in Q2. The transaction will have an immaterial immediate impact on NAV, compared to Literacy’s most recently reported figures (from 31 December 2023).

The name of the portfolio company has not been disclosed and will remain confidential.

Solid set of 2023 numbers from Literacy Capital

Literacy Capital published its 2023 results on 21 March, and reported its NAV up by 19% and the share price up 30.4% over the period. It received £46.3m in cash, the majority of it received from transactions involving Kernal Global and Butternut Box. These were transactions that were both completed at significant premiums to Literacy’s carrying value of the assets.

Literacy said last month that following the sale of BOOK’s stake in Butternut Box, almost 100% of its NAV is now weighted to the buyouts of profitable businesses rather than riskier, early stage businesses.

In line with its charitable activities, aimed at helping disadvantaged children in the UK, the trust made £2.8m in charitable donations, a year-on-year increase in line with NAV growth.

The Armchair Trader added Literacy Capital to its long term buy list on 8 June. We liked the fact that the majority of the trust’s directors have founded or scaled up large businesses. It is structured as a permanent capital vehicle and the majority of the fund is owned by its directors, the wider team and family members.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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