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F&C Private Equity Trust completes £30m zeros placing

9th December 2009 Print

F&C Private Equity Trust has announced the successful completion of its £30m zero dividend preference share issue. The zeros have been issued with a five-year life and a gross redemption yield (GRY) of 8.75%.

FCPET is a diversified investment trust that invests in private equity funds and direct investments. It focuses on the mid-sized segment of the European buyout market, which despite the challenges facing the private equity sector in general is increasingly seen as an attractive area. The underlying private equity funds often come with ‘commitments' to further funding as and when required by the investee companies, and the issue of funding these commitments has been raised as a concern for a number of well diversified funds over the past year.

F&C Private Equity Trust funds the drawdown of commitments to private equity funds from a combination of the proceeds of realisations and bank borrowing. Whilst realisations have held up well during 2009 the banking sector's troubles have made it difficult to increase borrowing facilities. The issue of zeros will enable the Company, managed by Hamish Mair at F&C Investments in Edinburgh, to fund drawdowns of commitments over the next few years, and to face the future with confidence.

Hamish Mair commented: "We had been looking at ways to improve our capacity to finance our ongoing undrawn commitments. In normal circumstances we would have increased our bank borrowing, but these are not normal circumstances - banks are seriously constrained from advancing additional lending at present, and private equity listed vehicles are affected by this along with everyone else.

"It was important that we could demonstrate to our shareholders that we had enough capital to meet our commitments as they are drawn down, and a zero dividend preference share issue was one of the more accessible routes to achieving that.

"We are pleased to have raised the full £30m we had targeted, particularly as ours was the third such issue in just a couple of weeks."

In summary, Mair added: "I can't say for sure but it is possible that we have seen the worst of the decline in asset values for private equity funds, and in our case there is a good prospect of a stronger rating for the shares, which have a wider discount to asset value than a number of our peers. As a result of this successful issue of zeros we are now well-placed to benefit when the recovery kicks in. We have commitments which, as they are drawn, will allow us to participate in new deals. The additional capacity that the proceeds of the zero issue gives us should remove any question marks about our ability to meet these commitments."