The failure of Hipgnosis Songs Fund's (LSE:SONG) continuation vote raises many questions for investors, though some investment bank analysts said it may come as a relief for some after the rush of conflicting news in recent weeks.
First things first, the company will not automatically be wound up, but the failure to win what is normally a routine vote means the board now has six months to put forward proposals for the 'reconstruction, reorganisation or winding-up' of the fund, noting this could result in a partial, as opposed to a full, portfolio sale.
This is somewhat complicated since there is only one director left on the board, who said the search for a new chairman was underway after Andrew Sutch was given the boot at the AGM.
A new chairman should be appointed over the next few weeks and their to-do list is already quite significant, said analysts at Stifel.
Fellow investment bank Jefferies said shareholders will want answers about the fair value of the portfolio and there is "potential for weakness" at a forthcoming valuation point.
Both banks expect a pre-emptive notice of termination to be served on the agreement with the current investment advisor, Hipgnosis Songs Management (HSM), led by the trust's founder Merck Mercuriadis and majority-owned by Blackstone, given the failed continuation vote.
Termination gives HSM and Blackstone the right to acquire the portfolio at 'fair' value following the 12-month notice period, under an existing call option agreement.
Arguably, this could be accelerated "to the benefit of all parties", said Jefferies.
The selection process for a replacement manager could see Mercuriadis re-pitch, but the nature of the termination will be important, Stifel said.
If the termination is based on negligence it could remove the need for a termination fee and could also, said Stifel, see HSM's call option lapse.
"It's unclear how feasible this is, but given a string of unforced errors since IPO, we expect it to be a 'live' topic," the Stifel analysts said, but given the structuring of the proposed £440 million sale, which lapsed due to the failed vote, "would not be surprised if Blackstone declines to exercise the option".
However, the potential use of this option is likely to support the share price in the interim, the bank said.
For Jefferies, the question is "whether this board is able to propose an 'open' sale process for the portfolio that extracts this fair value for shareholders, while still honouring the manager's option, or will the existence of the option simply prohibit any realistic bids?"
Another consideration it suggests is whether HSM would acquire the entire portfolio.
"The manager clearly wants to maintain the relationships with all the underlying songwriters/artists, which was the initial point of the option, but would its backer Blackstone want to acquire circa $2.5bn of assets, against existing commitments of $1bn?
"Moreover, would this be too big for a potential debt securitisation similar to what was conducted on the private fund assets? Any partial sale to the manager could inevitably run into cherry-picking concerns though, particularly given its knowledge of the portfolio. A full sale of the portfolio is also preferable in the context of the debt that should be repaid first, potentially accounting for the proceeds of any initial partial sale."