Citrin Cooperman, the influential valuer of music rights/transactions, has significantly reduced its expectation of the amount of money that Hipgnosis Songs Fund (HSF) will receive related to the Copyright Royalty Board’s landmark decision in the US commonly known as CRB III.
As a result of CRB III, which was finalized in late 2022, music streaming services were told that they needed to retrospectively increase the royalty rates for songwriters and publishers when it came to music played on their services in the US between 2018 and 2022 (inclusive).
As a result, those same streaming services – including Spotify, Amazon Music, Apple Music etc. – were left on the hook for lump-sum payments to music rightsholders to cover these retrospective rate rises.
This morning (October 16), UK-listed Hipgnosis Songs Fund informed its shareholders that Citrin Cooperman had now “materially reduced its expectations of industry-wide retroactive payments in relation to the US Copyright Royalty Board’s decision in relation to royalties payable to songwriters for the period covering 2018-2022 (‘CRB III’) for its valuation of [HSF’s] portfolio”.
In July, Hipgnosis Songs Fund published its annual report for the year to end of March 2023. As covered in an MBW report at the time, HSF’s report detailed an expected $21.7 million accrual from the ‘CRB III’ streaming royalty ruling in the US, which would be recognized in HSF’s FY 2023 year.
Today (October 16), thanks to the change in Citrin Cooperman’s expectations, HSF’s board said that it now “expects to receive significantly lower retroactive payments in relation to CRB III” and “therefore intends to reduce its CRB III retroactive accrual to $9.9m, from $21.7m as at 31 March 2023″.
A reduction in that expected retrospective CRB III payment from $21.7 million to $9.9 million represents a decline of 54.3%, or $11.8 million, in Citrin Cooperman’s forecast.
As a result of this alteration – and a consequent reduction in the value of HSF’s portfolio – the music company has today told shareholders it is withdrawing its previously-proposed, upcoming interim dividend of 1.3125 pence per share “in order to ensure compliance with its revolving credit facility’s Fixed Charge Cover Ratio covenant”.
(Hipgnosis Songs Fund announced $700 million-worth of debt refinancing in October last year via a five-year revolving credit facility, or RCF; that RCF came with conditions related to Hipgnosis Songs Fund’s portfolio value and its annual EBITDA.)
The timing of Citrin Cooperman’s change in its CRB III expectation is hardly great news for HSF shareholders.
Said shareholders were due to be paid their (now-scrapped) interim dividend on October 27, the day after a crucial set of HSF shareholder votes are scheduled to take place.
On October 26 – barring a change in schedule – HSF shareholders are expected to vote on both:
- (a) The continuation of the company in its present form (‘continuation vote’); and
- (b) A proposed $440 million acquisition of a portfolio of copyrights from HSF by Blackstone-owned Hipgnosis Songs Capital.
The former will be voted on at HSF’s Annual General Meeting (AGM); the latter will be voted on afterward, at an Extraordinary General Meeting (EGM).
HSF’s note to shareholders today continued: “In addition, [HSF] is in discussion with the agent and the lenders to avoid any potential impacts of the unwinding of the CRB III accrual on future Fixed Charge Cover Ratio covenant compliance.
“Subject to satisfactory conclusion to discussions with lenders, the Board expects to declare and pay future dividends as targeted. A further announcement will be made in due course.
“The person responsible for making this notification is Andrew Sutch, Chairman of Hipgnosis Songs Fund Limited.”
Andrew Sutch announced last month he was to exit his role as Chairman of Hipgnosis Songs Fund. HSF has begun a process to recruit his successor.Music Business Worldwide