the morley-managed quarterly high income trust misses 2001 dividend payments and sells all equity and bond holdings in favour of cash
The Morley-managed Quarterly High Income Trust split cap needs to grow gross assets by 36% to meet its asset cover banking covenant requirement.
However, in its unaudited results for 2001, published at the end of April, the board admitted it did 'not envisage performance improving in the near term'.
At an EGM on 10 May the board will discuss the financial position of the company with shareholders.
The trust did not pay out its third and fourth quarterly dividends during 2001 and the board said it did not expect any dividends to be paid for the foreseeable future.
At present it is negotiating with bankers on the future of the trust and to restructure its bank loan. So far it has agreed to sell all its equity and bond holdings and lodge the funds as cash with its bankers. This means the £91.7m portfolio would have £45.4m in cash with the remaining £46.3m invested in the paper of other split cap trusts.
Chairman of the trust, Robert Brooks, said as the bankers were being supportive of the company, the directors have prepared the accounts on a going concern basis.
He added: 'This assumes that the company will continue for the foreseeable future. However, at the current time no agreement has been reached and this creates a fundamental uncertainty for the future viability of the company.'
Originally launched in 1992 the trust, run by Roger Bade, invested in geared ordinary shares of other splits with the remainder in fixed interest.
For the 12 months ended 31 December 2001, the NAV for ordinary shares fell from 73.13p to nil and zeros had fallen from 113.25p to 109.25p. Since then, to 19 April, the NAV of ordinary shares is still at nil and zeros have fallen a further 73.6% to 29.01p. The final entitlement for zero holders, in 2007, is 181.7p so it seems highly unlikely they will pay out their full amount.
Brooks said: 'A marked decline in assets resulted in the company facing a serious situation, both in terms of its ability to comply with certain financial covenants contained in its existing bank borrowing facility and in paying dividends to ordinary shareholders. Zero holders have also suffered from this decline in assets, such that their final entitlement is in substantial deficit.'
Based on the current outlook for the trust, the board has said that returns to shareholders, if any, may only be achievable in the long-term.
Brooks said that he hopes that improved standards of disclosure and listing rules requirements will improve investor sentiment towards the splits sector.
He added the board is supporting the AITC initiative to improve disclosure standards. Therefore, on its website, the manager reports all holdings in other splits above 0.5% of the company's assets.
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