Investment trust insider on BioPharma Credit

Investment Trust Insider on Capital Gearing Trust

Investment trust insider on BioPharma Credit – James Carthew: a good testing time for BioPharma Credit

Last week I mentioned that the largest fund in the AIC’s three debt sectors is the £1.4 billion BioPharma Credit (BPCR), whose investment approach of lending to revenue-generating life sciences companies has attracted a large fan base, helped by an attractive yield (6.9%).

It is a couple of years since I last wrote about BioPharma. At the time, it had just announced that it was lending biotech company, Tesaro up to $370 million (£299 million today). I was concerned that this represented an excessive concentration risk as it accounted for almost half the proceeds of the fund’s flotation.

BioPharma addressed this potential problem by raising more money and diluting the position. It remained a significant holding, however, and so, when GlaxoSmithkline bought Tesaro and the loan was repaid in January it left the company sitting on a huge pile of cash.

The early repayment of the Tesaro loan came with almost $48 million of make-whole and prepayment charges – designed to leave BioPharma in no worse position than if the loan had run to maturity, 15 months later. This has helped BioPharma greatly. Confident in its ability to cover its planned dividend payments from this and other income, Pharmakon Advisers (BioPharma’s investment managers) could take their time about finding suitable replacement investments.

Fast forward to the end of June when BioPharma announced a loan of up to $80 million to BioDelivery Sciences International and spent $25 million on an equity stake in that company. It has also invested $22 million in a selection of convertible bonds. That still left it with $613 million of cash.

Notwithstanding the flexibility afforded by the one-off income from Tesaro, this slow pace of deployment raises some concerns as the manager has also raised money for an unlisted fund (BioPharma Credit Investments V) with a similar investment approach to BioPharma Credit. Pharmakon also needs to find a home for the $260 million raised so far for that fund.

The manager says… read more here