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City Merchants High Yield Trust Ltd - Publication of Prospectus and Circular

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THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY JURISDICTION FOR WHICH THE SAME COULD BE UNLAWFUL.

22 April 2021

City Merchants High Yield Trust Limited

Publication of Prospectus and Circular

Introduction

The Board of City Merchants High Yield Trust Limited (“CMHY” or the “Company”) announced on 1 March 2021 that it had signed Heads of Terms with the Board of Invesco Enhanced Income Limited (“IPE”) in respect of a proposed merger with IPE to be effected by way of a shareholder approved contractual scheme of reconstruction by IPE and a transfer of assets to CMHY (the “Scheme”).

A circular in connection with the Scheme will shortly be sent to the Company's shareholders (the “Shareholders”) including details of the Proposals and to convene a general meeting of the Company (the "General Meeting") to seek approval from Shareholders for the implementation of the Proposals (the "Circular"). In addition, a prospectus (the "Prospectus") in relation to the issue of New Shares in the Company pursuant to the Scheme is expected to be published later today.

Background to the Proposals

CMHY and IPE share many similarities: both are managed by Invesco and have the same lead portfolio manager, Rhys Davies; both companies invest in the same asset class with similar investment objectives and policies; there is significant overlap between the two portfolios; and CMHY and IPE have many common shareholders.

The Board is very aware of the benefits that accrue to shareholders from greater economies of scale including a lower ongoing charges ratio and increased liquidity. In light of this and the similarities between CMHY and IPE, the Board entered into discussions with the Board of IPE with respect to the proposed merger and both the Board of CMHY and the Board of IPE are in agreement that the interests of Shareholders and IPE Shareholders would be best served if the assets of CMHY and IPE were merged into a single entity.

Conditional upon the Scheme becoming effective, the Proposals would result in certain assets of IPE transferring to the Company. The Scheme will be implemented on a Formula Asset Value (“FAV”) for FAV basis.

It is proposed that the enlarged entity will be renamed Invesco Bond Income Plus Limited (“BIPS”) which, based on the existing net assets of CMHY and IPE, would have net assets in excess of £300 million. A resolution to change the name of the Company will be put to Shareholders at the General Meeting. The current portfolio manager of both CMHY and IPE, Rhys Davies, will continue as the portfolio manager of BIPS.

(The above proposals are referred to herein as the “Proposals”.)

Benefits of the Proposals

The Board believes that the Proposals have a number of benefits for CMHY shareholders:

  • Greater scale through the combination of similar investment portfolios: CMHY and IPE are managed by the same fund management company and investment manager and with a similar investment style. Rhys Davies currently manages both companies' portfolios with a good track record and does so with a similar investment objective of high income and a focus on high-yield fixed-interest securities. There is a high degree of overlap between the two investment portfolios.

  • Lower management fee arrangements: In connection with the Proposals, it has been agreed with Invesco that the management fee will be reduced to an annual amount equal to 0.65 per cent of the total assets less current liabilities to reflect the larger size of the Enlarged Company. This is a reduction from the current annual management fee payable by CMHY of 0.75 per cent of total assets less current liabilities. Following the merger, the administration fee of £22,500 (plus Retail Price Index) currently payable by the Company to Invesco will be removed and the Company will pay an annual marketing fee of £45,000 to Invesco.

  • Lower ongoing charges: In addition to the change in management fee arrangements, the other costs of CMHY will be spread across a larger asset base resulting in further economies of scale and a reduction in ongoing charges ratio.

  • Potential improved liquidity: The Board expects that the Enlarged Company will benefit from greater liquidity in its shares.

  • Potential for improved share price rating: The Board believes that the above benefits should assist the shares in maintaining an improved rating as the greater scale of the Enlarged Company is expected to result in broader market appeal.

Details of the Scheme

Subject to the passing of the Scheme Resolution and to the satisfaction of certain conditions, IPE will be summarily wound up in accordance with the Companies Jersey Law 1991, as amended, and the Scheme will take effect. Pursuant to the Scheme, IPE Shareholders will receive New Shares.

It is expected that the Scheme will become effective on the Effective Date, whereupon the cash and other assets of IPE comprising the Rollover Pool (excluding the Repo Contracts and the FX Forwards, the rights and obligations under which shall be novated to the Company under separate novation agreements), shall be transferred to the Company pursuant to the Transfer Agreement in consideration for the issue of the New Shares. The relevant numbers of New Shares will be allotted to the Liquidators who will renounce the New Shares in favour of the IPE Shareholders (save for any Restricted IPE Shareholders).

The issue of the New Shares will be determined on the basis of a conversion ratio based on the IPE FAV per Share and the Company FAV per Share as at the Calculation Date. Stamp duty and listing fees will be borne by the Enlarged Company. The New Shares will rank equally in all respects with the existing issued Shares other than in respect of the First Interim Dividend declared with a record date prior to the Effective Date.

Unless the conditions set out in the Circular have been satisfied, or, to the extent permitted, waived by the Company and IPE at or before 30 June 2021, the Scheme shall not become effective.

Conditions of the Scheme

The Scheme is conditional upon:

  1. the passing of the resolutions at the IPE General Meeting or any adjournment of the IPE General Meeting and any conditions of such resolutions being fulfilled;

  2. the passing of the Scheme Resolution at the General Meeting and becoming unconditional in all respects;

  3. the approval of the FCA and the London Stock Exchange to the Admission of the New Shares to the Official List and to trading on the main market of the London Stock Exchange, respectively;

  4. the novation of the Repo Contracts and FX Forwards to CMHY with effect from the Effective Date; and

  5. the IPE Directors resolving to proceed with the Scheme.

Dividends

In recent years, the Company has paid an annual dividend of 10.0 pence per Share by way of four quarterly payments of 2.5 pence per share. In connection with the Proposals, the Board proposes that the Enlarged Company adopts a dividend policy to target an annualised dividend of 11 pence per share over a three year period following the implementation of the Scheme by way of 12 quarterly dividend payments of 2.75 pence per Share, with the first such dividend being the second interim dividend for the year ending 31 December 2021 which is expected to be declared in June 2021*. On the implementation of the Scheme, the target total dividends per Share for the year ending 31 December 2021 would therefore increase to 10.75 pence per Share* (being the First Interim Dividend of 2.5 pence per Share and three further quarterly interim dividends of 2.75 pence per Share).

It is anticipated that dividends will be substantially covered by net income from the portfolio although the Enlarged Company will support the target dividend over this period through the use of revenue and capital reserves if necessary. Thereafter, the Board intends to consider its ongoing dividend policy, taking into account the annualised net income from its portfolio and the market environment at that time. The Board of CMHY has agreed the proposed dividend policy with the IPE Board in recognition of the differential in income distribution ratios adopted by each of the two companies and it is intended to provide a path towards a longer-term sustainable income distribution to shareholders of the Enlarged Company.

CMHY has declared the First Interim Dividend of 2.5 pence per share for the period from 1 January 2021 to 31 March 2021. The holders of New Shares will not be entitled to the First Interim Dividend but rather will receive (prior to the Effective Date) the IPE Second Interim Dividend and a special pre-liquidation dividend of 0.75 pence per IPE share from IPE. The holders of New Shares will be entitled to any other dividends and distributions declared in respect of the Shares with a record date after the Effective Date.

*This is a target only and not a profit forecast. There can be no assurance that the target will be met and it should not be taken as an indicator of the Company's expected or actual results.

Proposed Board Changes

If the Scheme is implemented, for continuity purposes for the IPE Shareholders, it is intended that Kate Bolsover and Christine Johnson, the existing Chairman and non-executive director of IPE, respectively, will join the Board on the Effective Date. Stuart McMaster will step down on the Effective Date. Following implementation of the Scheme, the Board of BIPS will comprise six non-executive directors all of whom will be independent of the AIFM and the Investment Manager.

Timothy Scholefield will be the Chairman of the Enlarged Company and Kate Bolsover shall be appointed as Senior Independent Director. In accordance with Provisions 5.2.6 and 6.2.13 of the AIC Code, the Board has identified that Timothy Scholefield and Kate Bolsover are both directors of Fidelity Asian Values Plc ("FAS"). However, Timothy Scholefield does not intend to stand for re-election to the board of FAS at the annual general meeting to be held in December 2021. It is noted that the majority of the Board of the Enlarged Company will be independent of each other.

Proposed Amendments to Articles

As noted above, if the Scheme is implemented, the Proposed Additional Directors will join the Board on the Effective Date. The Articles of Association currently provide that the aggregate fees of the Directors will not exceed £150,000. Resolution 3 in the Notice of General Meeting at the end of the Circular seeks authority to amend the Articles of Association in order to increase the aggregate fees of the Directors to £185,000 to allow the Proposed Additional Directors to join the Board.

Borrowings

The Company currently has net borrowing of 2 per cent. of net assets as at 20 April 2021 (being the latest practicable date prior to the publication of this announcement). It is intended that, following the implementation of the Scheme, the net gearing of the combined portfolio will be adjusted to approximately 10 per cent. of net assets.

Proposed Name Change

If the Scheme becomes effective, it is proposed that the enlarged entity will be renamed Invesco Bond Income Plus Limited. Resolution 2 in the Notice of General Meeting at the end of the Circular seeks authority for the name of the Company to be changed accordingly.

Prospectus and Circular

The Prospectus and Circular is expected to be published shortly and copies will be available for inspection on the Company’s website www.invesco.co.uk/citymerchants. In addition, a copy of the Circular has been submitted to the National Storage Mechanism and will shortly be available for viewing online at the following website address:

https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The General Meeting

The General Meeting will be held at the offices of JTC Fund Solutions (Jersey) Limited, 28 Esplanade, St Helier, Jersey JE2 3QA at 9.30 a.m. on 19 May 2021 but will follow the minimum legal requirements for a general meeting. Only the formal business set out in the Notice will be considered. In view of the current UK Government guidance and the guidance of the Government of Jersey regarding measures to reduce the transmission of Covid-19, including the rules on physical distancing and limitations on public gatherings in place as at the date of the Notice, physical attendance at the General Meeting will not be possible and the number of individuals in physical attendance will be limited to the quorum required by the Articles of Association, being two persons.

The situation in relation to Covid-19 continues to evolve and the Company will update Shareholders as to any changes to the above arrangements for the General Meeting through its website at www.invesco.co.uk/citymerchants and, where appropriate, through announcement on the London Stock Exchange.

Note: The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages, other than the content of the document referred to above, is neither incorporated into nor forms part of the above announcement

Expected Timetable

Ex-dividend date for First Interim Dividend to Shareholders

22 April 2021

Record Date for First Interim Dividend to Shareholders

23 April 2021

Calculation Date in relation to the Scheme

5.00 p.m. on 14 May 2021

Latest time and date for receipt of Forms of Proxy

9.30 a.m. on 17 May 2021

General Meeting

9.30 a.m. on 19 May 2021

Effective date for implementation of the Scheme

19 May 2021

Dealings in New Shares commence

8.00 a.m. on 20 May 2021

Terms used and not defined in this announcement have the meanings given in the Circular unless the context otherwise requires.

This announcement does not contain all the information which is contained in the Circular. Shareholders should read the Circular to make an informed decision in respect of the Proposals.

For further information please contact:

JTC Fund Solutions (Jersey) Limited
Hilary Jones

+44 (0) 15 3470 0000

Invesco Asset Management Limited
Will Ellis
Guy Short

+44 (0) 20 3753 1000

Winterflood Securities (Financial Adviser to CMHY)
Neil Langford
Hande Derinkok

+44 (0) 20 3100 0000