Henderson looks to raise £25m for Pattullo’s Diversified Income

Henderson is testing the water for a C-share issue to raise additional capital for John Pattullo’s Diversified Income trust.

The group said it would look to target a minimum of £25m if it goes ahead with the proposal, which would swell the trust’s £84m asset base.

James de Sausmarez, director and head of investment trusts at Henderson, said the trust’s strong performance over the past year, combined with the 4.1% premium, has prompted the board to consider raising additional capital.

He added with 60% of the portfolio investing in secured loans linked to the interbank lending rate, the trust is set to prosper when interest rates rise.

The remaining 40% of the trust comprises high yield and investment grade bonds.

“We are going to the marketplace to test out whether there is sufficient demand for a C-share offer, as we believe retail investors are keen to diversify their income streams.

“The secured loans part of the portfolio will thrive when interest rates rise as the coupon paid on the loan is linked to LIBOR, and investors find this appealing.

“Investors are looking at the asset class as they try to find the best way to protect their income when rates rise.”

Matthew Hose, an analyst at J.P. Morgan Cazenove, welcomed the proposal as he said the trust has rectified its performance after difficult start in 2007.

He said the vehicle is comfortably beating its income target of 1.25% over sterling three-month LIBOR.

“Given the trust’s income focus, a C-share issue would be a sensible way to increase the size, as it would help avoid any additional capital causing a ‘cash drag’ before it could be invested.

“The trust also announced a second interim dividend and this reflects the gradual increase in LIBOR over the last 18 months and the manager’s deliberate positioning of a large part of the portfolio into LIBOR-linked secured loans in order to take advantage of this.”