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New splits row as BFS shareholders reject rescue plan

The split-cap sector was thrown into further turmoil this week as BFS Investment&#39s geared income trust failed to implement a proposed rescue package after breached its banking covenant.

The fund, which invests almost entirely in other splits and is one of the most highly geared funds on the market, is owned by many other split trusts.

The restructure failed when shareholders rejected an offer to exchange existing zeros for a new issue of zeros with a much longer life.

The fund is in breach of its Lloyds TSB and Bank of Scotland banking covenants alth-ough both banks say they will not be pulling their loans at the present time.

In a Stock Exchange ann-ouncement on Friday, the trust said: “The board will reconsider an issue of further capital with a view to recapitalising the company and improving the position for all shareholders… when market conditions and prospects permit.”

The AITC wrote a letter to the boards of all split-cap trusts last week, asking them to provide comprehensive details of their portfolios and gearing to create new risk-ratings for the funds.

The trade body has already called on the industry to disclose its holdings and gearing levels to provide greater disclosure for the consumer. However, more than a quarter of trusts have not yet co-operated.

The AITC says all data collected for riskrating would remain confidential and has set a deadline of April 15 for providers to supply the information.

Director general Daniel Godfrey says: “With this information, we will for the first time be able to understand and quantify the true impact of multiple levels of gearing and charges that arises from the element of the portfolio that is invested in other investment companies.”

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